State pension to increase by £5.57 a week from April

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Broken third lock – TMG

The state pension will rise by £5.57 a week next April, increasing in line with inflation, which hit 3.1pc in the year to September.

Inflation data published by the Office for National Statistics has today confirmed that the full new state pension will rise by £289.85 a year, from £9,350 to £9,640 in the next tax year. In weekly terms, it will increase from £179.60 to £185.17. The basic state pension, received those who reach pension age before 2016, will increase by £4.27 a week, from £137.60 to £141.87.

However, this represents muted growth following the Government’s controversial decision to break its “triple lock” promise.

More than 12 million pensioners will be denied a record boost in the state pension, which would have risen by 8.3pc under the triple lock. This measure ensures the state pension rises each year by the highest of inflation, wage growth or 2.5pc.

The Government has changed the way the state pension uprating is calculated for 2022 by suspending the earnings link. This was done in a bid to avoid an astronomical bill for public finances after the pandemic distorted wage growth figures.

Earnings data published by the Office for National Statistics in September revealed an 8.3pc increase in the three months to July, after wage cuts and furlough depressed earnings last year, creating an artificial boost.

Britons will be £11,600 worse off by the time they reach age 85 as a result of the broken promise. This is the most conservative calculation as it assumes the state pension only increases 2.5pc beyond 2022. The £486 a year difference between the two payments would compound over time, costing pensioners thousands of pounds in retirement benefits.

Tom Selby of AJ Bell, the stockbroker, said: “The decision to ditch the triple lock was another reminder that the state pension, while valuable as a retirement income foundation, remains uncertain and subject to the whims of politicians.”

Baroness Ros Altmann, a former pensions minister, criticised the move in the House of Lords last week. She said the Government had “abandoned earnings protection for the poorest pensioners”.

“This is a really unnecessary policy decision, which breaks a solemn manifesto commitment,” she said. The ONS published earnings data that stripped out the impact of the pandemic, giving a growth rate of 3.6pc that could have been used in the triple lock calculation, Baroness Altmann said.

The suspension of the long-held Conservative Party manifesto pledge had set a “dangerous precedent”, opening the door for future chancellors to abandon pensioner protection in future, she added.

“With sharply rising inflation, particularly for the basic essentials of life such as food, drink and fuel, dropping protection for the poorest pensioners, mostly elderly women, jeopardises recent progress in alleviating later life poverty,” she said.

Suspending the triple lock has broken many pensioners’ confidence in the Government. Half of over-65s said they were less trusting of government pension policy as a result.

Meanwhile, the average couple will spend an extra £1,130 by the end of the year as a result of rising taxes and costs. With pension incomes rising by just £290 in 2022, this will create a £550 shortfall for a couple, according to calculations for Telegraph Money by the Centre for Economics and Business Research, a consultancy.

Steven Cameron of Aegon, the pension provider, warned that inflation could surge higher in the coming months, eroding pensioners' spending power. “There’s a concern the 3.1pc increase may fall short of cost of living increases come April 2022,” he said. “With many pensioners heavily reliant on their state pension, and disproportionately affected by increased heating costs from the global energy squeeze, many could feel left out in the cold.”

Pensioners are more vulnerable to rising inflation, as their income is limited and a higher proportion of their spending goes on essentials, like energy. Becky O'Connor, of broker Interactive Investor, said that next year's state pension increase may not be enough for many to cope with rising bills. “Older people also tend to choose lower-risk investments within their private pensions and are more likely to use cash savings to avoid investment losses later in life, so are more exposed to inflation eroding the value of their wealth,” she said.

Household costs have risen faster for pensioners than for the working population over the past decade, according to the Office for National Statistics.

Are you happy with the state pension rise, and was it right for the Government to break the triple lock? Leave your thoughts in the comments section below

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