Retirees set for bumper state pension rise

Retired people could be in line for a significant rise in their state pension next year under the triple-lock system.

The triple-lock determines the annual increase in the state pension by whichever is the highest of average wage growth, price increases, or 2.5%.

The most relevant for the next rise in state pension will be the highest of these three elements, which is likely to be average wage growth.

Forecasts from the Office for Budget Responsibility (OBR) suggest average wage growth could result in an 8% rise in the amount paid from April 2022.

The OBR said in its recent Fiscal Risks Report:

"If earnings growth was 8%, that would add around £3 billion a year to spending [on the state pension] relative to our forecast."

Late last year, and in March this year, the OBR predicted wages would rise by 4.6% in 2021/22. Now, it is expecting it to be higher.

The Bank of England's monetary policy committee (MPC) agreed that average wage growth could hit 8%.

In its June 2021 MPC summary, policymakers said:

"The base effect of the drop in pay in spring and summer 2020 will continue to distort the annual comparison, such that, even if the level of private-sector regular pay were to remain unchanged, 12-month pay growth would still rise to close to 8% in the second quarter."

What would an 8% rise look like?

In 2021/22, the full new flat-rate state pension is worth £179.60 a week and the full old basic state pension is worth £137.60 a week.

Should the triple-lock rise by 8% for 2022/23, the current maximum state pension would increase by £14 a week for new state pension claimants.

Those who get a full basic state pension could get an additional £11 a week if the forecast is accurate.

The amount an individual gets from the state pension depends on their National Insurance record, and those who don't have full records could get less.

Triple-lock suspension?

With the Treasury facing a £3bn uprating bill, fears have been raised over the Government temporarily breaking the triple-lock.

Chancellor Rishi Sunak recently dropped the strongest hint yet that the predicted state pension rise will not go ahead next April.

"The triple-lock is the Government's policy, but I very much recognise people's concerns," he told BBC Breakfast.

"I think they are completely legitimate and fair concerns to raise.

"The numbers at this point are speculation, because we haven't actually got them yet. That happens later on.
"We want to make sure the decisions we make and the systems we have are fair, both for pensioners and for taxpayers."

Should that come to fruition later this year, it would go against a Conservative manifesto pledge made in 2019 to protect the triple-lock.

When will the final figure be released?

State pension payments increase each year by whichever rate is higher out of the Consumer Prices Index (CPI) rate of inflation for September, average wage growth as of July, or 2.5%.

The CPI measure of inflation rose from 2.1% in May 2021 to 2.5% in the year to June 2021 - the highest rate for nearly three years and 0.5% higher than the Bank of England's target.

As the UK economy unlocks, prices are expected to rise. But the inflation rate is unlikely to exceed average wage growth and the Government might need to intervene.

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