Budget 2021: Experts outline state pension changes
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State pension payments usually rise each year in line with the triple lock mechanism first introduced in 2010. The triple lock means the state pension increases each year by the highest of average earnings, prices, or 2.5 percent. However, the Government has confirmed the mechanism will be temporarily halted this year, in a shock blow to pensioners.
There were fears due to warped earnings data as a result of COVID-19 that the triple lock would be unaffordable this year.
Consequently, the Government has decided upon a 3.1 percent increase this year in line with the Consumer Prices Index (CPI).
Therese Coffey, the Work and Pensions secretary, explained: “It will ensure pensioners’ spending power is preserved and protected from higher costs of living.
“But it will also ensure that as we are having to make difficult decisions elsewhere across public spending – including freezing public sector pay – pensioners are not unfairly benefitting from a statistical anomaly.
“At a time when we have made tough decisions to restore the public finances which have impacted working people – such as freezing income tax personal thresholds at current levels – this would not be fair.
“Setting aside the earnings element is temporary and only for one year.
“This means we can and will apply the triple lock as usual from next year for the remainder of this Parliament, in line with our manifesto commitment.”
However, what does the state pension increase mean for the sum in the future?
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The full basic or old state pension currently stands at £137.60 per week, but will increase to £141.85 per week.
Similarly, the full new state pension is, at present, £179.60 per week but it will rise to £185.15 per week.
People will not have to do anything to receive the higher sum of state pension.
This is because they should see the 3.1 percent increase automatically applied to their pension once the new rate comes in.
The new rate will apply in the 2022/23 tax year, and come into effect on April 11, 2022.
There are concerns, however, which remain about the state pension increase this year, with many worried the cost of living will outpace the increase in the sum.
This was made most apparent only days ago with inflation soaring to 5.1 percent according to the Office for National Statistics (ONS).
Becky O’Connor, Head of Pensions and Savings at interactive investor, said many pensioners would be disappointed with the rise, as it doesn’t cover the increases they are experiencing when it comes to the cost of heating and eating.
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She said: “They will be left worrying about how they will manage their bills over the coming year.
“It will be cold comfort to them that the inflation they are struggling with now will be reflected in next year’s uprating.
“The decision to scrap the triple lock for a year proved controversial, despite being justified by extremely high post-pandemic earnings figures, amid rising inflation since September.
“The Government must maintain its commitment to reinstate the lock next year and do more to boost the uptake of Pension Credit among the poorest pensioners in the meantime.”
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