Experts warn rising prices could outstrip pension boost
If the government approves the uprating, retirees on full state pensions will receive £185.15 each week from April, a 3.1 per cent jump from the current total of £179.60.
Those on the basic state pension will see an equivalent percentage rise to £141.85 a week.
State pension increases are usually determined by the triple lock, which was introduced in 2010 to ensure that the allowance did not lose value in real terms.
Under this system, the state pension grows by whatever is highest out of the rate of inflation, the average wage increase or 2.5 per cent.
However, the government announced in September that it was suspending this arrangement due to fears that the recent spike in wage earnings rendered it unaffordable.
In the three months to July 2021, average wage growth leapt by 8.3 per cent, skewed by the reopening of the economy. is If the triple lock mechanism applied, this would entail a significant jump in the state pension.
As a result, next year’s rise will be calculated by the rate of inflation, which is higher than the 2.5 per cent fall-back option.
Ian Browne, pensions expert at Quilter, said April’s change would still be the third-highest in the last decade, behind the 5.2 per cent boost in 2012/13 and 3.9 per cent increase seen last year.
However, Alistair McQueen, of Aviva, said the 3.1 per cent rate was a “backward-looking measure”, as it only reflects price hikes from September 2020 to September 2021. It therefore underplays recent food and fuel costs, he warned.
Sarah Pennells, a consumer finance specialist at Royal London, shared his concerns. “Rising energy costs will add to the concern that price rises will outstrip the increase pensioners see next year,” she said.
Additional reporting by PA