The state pension is on track to exceed £10,000 a year if the government delivers on its promise to reintroduce the ‘triple lock’ on annual increases.
The popular guarantee means the state pension will be increased at the highest inflation rate, wage growth or 2.5 percent — but it was scrapped last year as the pandemic temporarily skewed the income figure.
Inflation will be highest this year, so the AOW increase should be decided by the September CPI figure, which will be released on October 19.
Popular guarantee: State pension on track to rise 10% as new Prime Minister Liz Truss delivers on triple promise
Inflation in August, which was published last week, was 9.9 percent, compared to 10.1 percent. The latest earnings growth, based on total pay including bonuses, was 5.5 percent.
But older people anxiously waiting to find out what AOW raise they’ll get next April may find it still lagging behind prices.
Inflation could remain around 10 percent during the key month of September, but rise further this winter despite the government’s freeze on the energy price ceiling.
Last year, the triple lock was suspended as wage increases were disrupted as the labor market recovered from the impact of Covid-19.
I’ve paid NI for 44 years but get a lower state pension than people who are retiring now – how is that fair?
Here’s Money’s retirement columnist Steve Webb explains how the April 2016 revamp was designed to be fair to everyone, and why people who have reached state retirement age earlier shouldn’t feel bad.
‘The switch to the new AOW is not a windfall for people who have yet to retire,’ he says.
But this year, skyrocketing inflation is taking a heavy toll on retirees struggling to pay their household bills.
Using the August inflation rate of 9.9 percent, retirees with a state pension of £185.15 a week or about £9,600 a year after 2016 would see an increase to £203.50 a week or £10,600 a year.
Those with the old base rate would see a jump from £141.85 a week or about £7,400 a year to £155.90 or £8,100 a year.
During the Tory leadership campaign, Prime Minister Liz Truss pledged to reintroduce the triple lock this year, but will likely come under pressure to reverse due to the tight public finances.
There is overwhelming support for the triple lock among retirees, but less so among younger generations.
According to a Canada Life survey that is representative of all adults in the UK, about 55 percent of adults generally stick to the triple lock under current conditions.
But that equates to 78 percent among over-55s, 44 percent among 35-54 year olds and 33 percent among 18-34 year olds.
>>>What do YOU think? Vote in our triple lock poll below
Separate research by Canada Life found that two-fifths of adults in the UK have cut spending as a result of rising prices.
About 37 percent are concerned about their own or their household finances, and 31 percent are already feeling the impact of inflation on their finances.
How has the AOW decision under the triple lock been taken over the years?
*Subject to seasonal changes
AOW record amount to rise next year
“The immediate outlook looks bleak as the Bank of England forecasts inflation to peak at around 13 percent later this year,” said Andrew Tully, technical director at Canada Life.
The peak, if it does come, will offer little respite if inflation is expected to continue well into the next year and not come close to the target of about 2 percent in the coming years.
While UK workers continue to feel the pain as wages lag behind inflation, there will be positive news for retirees in the coming months.
“As inflation moves forward, September data will determine the standard of living of millions of pensioners in the UK for the coming year, and it is very likely that the state pension will rise by a record amount in April 2023.
What do the readers of This is Money say?
Our recent poll showed strong support for the elderly getting the full state pension increase, as promised under the April triple lockdown.
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“People are clearly cutting back where they can and many are concerned about their household finances.
“Unfortunately, the worst is yet to come unless we see further significant government interventions in the coming weeks.”
April’s rise feels a long way off for struggling retirees
“Inflation has eased this month but remains skyrocketing and looks set to continue to do so for the foreseeable future,” said Helen Morrissey, senior pensions and pension analyst at Hargreaves Lansdown.
This means that retirees will be eligible for a significant pension increase next year, as long as the government keeps its promise to keep the triple lock.
‘If the link to CPI continues, retirees with a completely new state pension could get more than £200 a week.
Last year’s increase of 3.1 percent was no match for soaring inflation and has made it difficult for many retirees, so a more generous increase will be welcomed.
“But such an increase won’t go into effect until April, which now seems a long way off for those struggling to make ends meet.”
Questions remain about the affordability of the triple lock
“The government has previously committed to reintroducing the triple lock after the 2022-23 revenue element was suspended due to disruptions caused by the Covid-19 pandemic,” said Kate Smith, head of pensions at Aegon.
She notes that new Prime Minister Liz Truss reiterated this during her leadership campaign, but added: “Questions will remain about its affordability and whether the triple lock will survive in its existing form in all parties’ manifestos prior to the election.” to the next general election.’
How high is the AOW?
The basic pension is currently £141.85 a week, or about £7,400 a year. It is supplemented with additional AOW entitlements – S2P and Serps – if accrued during working years.
The state structural system was replaced in 2016 by a new ‘flat rate’ state pension. This is currently worth £185.15 a week or about £9,600 a year.
People who have outsourced S2P and Serps over the years and who retire after April 2016 will receive less than the full new state pension.
But they can fill in the gaps in the unpaid and/or underpaid national insurance schemes in previous years, voluntarily supplement them to buy additional waiting years and build up more years if they have enough time between now and state pension age.
Employees had to have 30 years of eligible national insurance contributions to receive the old state pension, but they now have to have 35 years of contributions to receive the new flat-rate state pension.
But even if you’ve paid in full for 35 years, if you outsource a number of years, you may still get less.
Everyone is given the opportunity to postpone their AOW in order to receive more later. You can check your NI record here.
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