The State Pension increased by around £5.50 a week from April in line with inflation, which reached 3.1% in September.
The announcement of the increase on Wednesday 20 October followed the suspension of the ‘triple lock’ guarantee, with people reaching retirement age told they could expect a rise of the highest of 2.5%, or inflation.
Usually, earnings growth is included in the annual rise to State Pension payments under the government’s guarantee, but with wages soaring in the wake of the pandemic by 8.3%, this would have seen a record increase. Find out more in our article What is the pension triple lock?
Instead, the government is using inflation as the basis for the next rise, as the consumer prices index (CPI) reached 3.1% in the 12 months to September 2021. The State Pension will always rise by a minimum of 2.5%, or the CPI measure of inflation, and as inflation is the higher figure, this is what it will rise in line with.
If you receive the full new State Pension, you will see your annual income rise by £289.50, to £9,628.50 from April next year. Read more about how the State Pension works in our article How the State Pension works.
Tom Selby, head of retirement policy at investment provider AJ Bell, said: “This decision (to scrap the triple lock this year) will ‘cost’ someone in receipt of the full flat-rate state pension £9.35 a week in retirement income – or £486.20 over the course of the year.
“Each one percentage point increase in the state pension costs the Exchequer an estimated £900 million, meaning the Treasury is likely to save around £4.5 billion as a result of the move.
“For savers, 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.”
The impact of rising inflation on your pension
With inflation rising to 9% in April, the warnings of experts that the increase in the State Pension isn’t enough to meet the rising cost of living, are starting to ring true. Find out more about the impact of inflation in our article What does inflation mean for my money?
Becky O’Connor, head of pensions and savings at interactive investor, said: “While those receiving a State Pension can take comfort from it heading up in line with inflation from next April, with energy prices rising by the minute and the cost of food and other consumer goods continuing to increase, people will not feel out of the words yet.
“Pensioners are potentially more exposed than most to rising inflation because their income is limited and a higher proportion of their spending goes on essentials, like energy.”
What do you think of the government’s decision to suspend the ‘triple lock’ guarantee? Are you worried about your State Pension, and the impact that rising living costs could have on you? We’d be interested to hear from you. You can join the money conversation on the Rest Less community or leave a comment below.