Experts believe the increase in state pension payments is affordable and overdue
The Treasury plans to return to the “triple lock” system, under which the state pension will increase by 2.5 percent annually in line with inflation, average earnings or a flat rate, whichever is greater.
State pensioners will get an extra 10 percent in payments next year to keep up with inflation, even as the government rejects calls to do the same for public sector workers’ salaries.
The next increase, which will take place in April 2023, will be based on the level of the consumer price index (CPI) next September, when it is expected to hit 10 percent.
The CPI for May hit 9.1 percent – the highest since 1982 – as the cost of living crisis continues to weigh on British families.
September’s increase would result in an additional annual payment of around £960 for pensioners, at a total cost to taxpayers of £10bn.
The state pension was increased by 3.1 percent this April, when inflation stood at 7.8 percent, as the rate was set earlier in September.
Downing Street defended the decision, despite calls from public sector workers for similar pay rises.
Ministers have previously said that adjusting wages for inflation would feed higher prices into the economy, making it even harder to contain the impact of inflation.
Asked why public pensions would rise with inflation but not public sector salaries, the Prime Minister’s official spokesman said those on public pensions have been disproportionately affected by high energy bills.
“They can’t always supplement their income through work and are more vulnerable to cost-of-living pressures,” he said.
The spokesman said the government made “difficult decisions” when it suspended the triple lockdown last year, which he said was largely due to the need to avoid an anomaly in which pensions compensate for the rise in average wages caused by it would have been improperly rewarded End of leave regime.
“The Chancellor stressed that the government has a responsibility not to take any action that would lead to inflationary pressures or limit the government’s ability to cut taxes in the future,” the spokesman said.
Steve Webb, a partner at LCP and a former pensions secretary, said the increase was both affordable and overdue.
“It’s important not to look at next April’s pension increases in isolation,” he said.
“This year, with inflation hovering around 9 percent, retirees only got a 3.1 percent pension increase. Next April’s hike is very much a ‘catch-up’ and many retirees will struggle until then.
“We also need to remember the revenue side of government accounts. With tax thresholds frozen, high inflation will boost government revenues, meaning high overall rates of increase in pensions and benefits will be more affordable than normal.
“Having already broken its triple lock promise once, it would be totally unacceptable for the government to do so for a second year in a row.”
Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, said the suspension of the triple lockdown had been a point of “outrage” and welcomed its reinstatement.
“Retirees tend to spend a larger portion of their income on basic necessities such as energy, fuel and groceries and have therefore been particularly vulnerable to rising inflation in recent months,” she said.
“With inflation expected to hit about 10 percent in the coming months, it’s likely that retirees will see a large increase in state pensions for next year, although those will feel like a very long time to wait.” who are currently struggling to cover their costs.
This, of course, will add to the already significant cost of delivering the state pension and other benefits, and could leave the government less able to take further action if the cost-of-living crisis unfolds in the coming year aggravated.
However, it will be a great relief for pensioners dependent on state pensions who are struggling to make a living.”
Becky O’Connor, director of pensions and savings at Interactive Investor, said that anyone relying on the state pension is already “scratching the bottom of the barrel” for surviving the cost-of-living crisis.
“Next year they will likely see a rise in line with inflation but that will not help them until April 2023 and will not make up for the deficit they continue to face this year as they struggle to heat their homes and to cleaning food on the table.
“High inflation of basic necessities hits low-income households, which depend on the state pension, for example, more than households with higher incomes. Increasing the state pension in line with price increases is an absolute must to prevent poverty among the unemployed.”