Retirees set for ‘highest ever’ 8% state pension rise next year
The work and pensions secretary Therese Coffey confirmed that the government “remains committed to the state pension triple lock for the rest of this parliament”.
Under the triple lock mechanism, it guarantees the basic state pension will rise by the higher of average earnings, inflation or 2.5%.
It ditched the earnings element of triple lock for pension rises for this April due to distortions created by the pandemic. By switching to a temporary double lock, the government broke a manifesto promise.
A such, from April 2022, state pensions will rise by 3.1%, far below the current 5.5% inflation rate.
However, given the government’s commitment to re-instate the triple lock next year, retirees are predicted to see an 8% state pension increase from April 2023.
This is because of comments made last week by the Bank of England’s Monetary Policy Committee. They noted inflation is expected to increase in the coming months to around 8% in Q2 2022 (four times the 2% target) and “perhaps even higher later this year”.
If inflation does reach 8% – and it dwarfs the earnings figure – it means retirees could see their state pension rise by this same amount.
The full new state pension is currently £179.60 per week (post-April 2016 retirees) while the full basic state pension is £137.60 per week.
‘Potentially the highest increase ever’
Steven Cameron, pensions director at Aegon, said: “The latest commitment is to be welcomed, meaning the increase in April 2023 and later years of this Parliament will be the highest of earnings growth, inflation or 2.5%. Anything less would have been met with pensioner outrage. But it still means many pensioners face a difficult squeeze on their cost of living for the next 12 months.
“Looking ahead, there’s a good chance that state pensioners will be in for a bumper increase in April 2023. The Bank of England’s latest prediction is that inflation might reach 8% in the Spring and could be even higher later in the year. The April 2023 increase will include inflation till September 2022, which could then be near its peak of 8% or above.
“The triple lock will pay this, or even more if earnings growth is higher again. Without any government tinkering, this could put state pensioners on target for a bumper 8% plus increase in 2023, potentially the highest increase ever, compensating for the relatively low increase this April.”
However, Cameron cautioned that “a year is a long time to wait” and given the timing of tomorrow’s Spring Statement, one approach to support pensioners is to increase the state pension this year in return for a lower rise next year.
He said: “The Chancellor could raise this year’s increase by 2.5% to 5.6%, but then pay 2.5% less than whatever the triple lock rise would have been next April. If as is being predicted price inflation were 8% next September, and if this were above earnings, state pensioners would still receive 5.5% next April.
“While this would come at a cost to the Chancellor for the coming tax year, it would be financially neutral in later years as the state pension from April 2023 would be the same as it would have been. But in the meantime, state pensioners would have benefitted from an extra 2.5% or around £4.50 a week for someone on the full state pension.”