Budget 2021: Experts outline state pension changes
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The double lock temporarily replacing the triple lock, has increased state pension by 3.1 percent, as pensioners lose out on the potential eight percent raise that would be guaranteed under triple lock. Calls from the House of Lords for a bigger pension rise is expected to be rejected, despite figures showing that inflation will be nearing a decade high while pensions don’t match up.
Had triple lock remained in place, state pension would have received a record high eight percent increase to match the average wage increases seen over the past year.
However, upon its suspension, triple lock was replaced with double lock, guaranteeing a state pension rise equal to the rate of inflation or 2.5 percent.
However, after a 3.1 percent raise was announced it has been revealed by the Bank of England that the Consumer Prices Index will peak at 5 percent early next year, and inflation at 3.4 percent by the end of 2022.
The Centre for Economics and Business Research estimated that this will see pensioners robbed of £169 next year based on the BoE’s latest projections.
The House of Lords amendment to the triple lock suspension will be considered by MPs today.
The amendments urge ministers to maintain the triple lock guarantee and raise pensions by using the Office for National Statistics’ higher estimates of wage growth which range from 4.1 to 5.6 percent.
The House of Commons is due to vote on the amendment today but it has been reported that this amendment is unlikely to be passed.
Meanwhile the cost of living crunch is estimated to last for years with inflation predicted to go well above five percent in 2023.
The full new state pension is currently £179.60 per week, and with the 3.1 percent rise recipients will receive £185.17 per week next year.
With the current 3.1 percent rise the full basic state pension will also see a £4.27 rise, going from the current £137.60 to £141.87.
While this would see pensioners income increase by roughly £200 per year, they will be losing out an additional £169 due to watering down of the triple lock.
The triple lock was implemented as a political promise to guarantee a state pension rise equal to the highest of either earnings growth, inflation or 2.5 percent.
The mechanism was suspended, reasoned with the fact that the unprecedented economic turmoil caused by the pandemic had resulted in unrealistic wages increases of roughly eight percent.
The controversial decision to suspend the triple lock has been criticised by many but the current rise showcases that pensions might not be missing out entirely.
The Consumer Prices Index announced in October that the 12 months ending in September 2021 saw a 3.1 percent inflation rate.
This revelation has also surprised many as the Bank of England had previously predicted inflation for this period to be higher than four percent.
This prediction was influenced by the two percent jump from the 12 months preceding July 2021, with the 1.2 percent increase representing the largest month-to-month increase in recent memory.
Economist at The Centre for Economics and Business Research, Sam Miley, said: “Pensioners will be particularly vulnerable to rising prices, due to the fact that their disposable incomes tend to be lower in the first place.
“Meanwhile, the nature of inflation at present, being heavily concentrated in utility prices, is also set to adversely affect pensioners, given that this makes up a relatively larger proportion of their overall spending.”
Pensioners can check the amount their income is set to rise using the online pension forecast tool provided by the Government.
The tool enables retirees to check what income they should be expecting, how they can increase their pension and what other financial support they may be able to benefit from.
Additionally, the tool can help those reaching retirement age decipher when they will be financially able to retire.
The tool can be found on the Gov.uk website.
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