Updated: Oct 26, 2022
The state pension is a regular payment from the government that most people can claim when they reach state pension age. Your state pension age depends on when you were born and you can find it by using the GOV.UK website.
Your level of state pension depends on your National Insurance record, which includes NI contributions that you pay when you are working and contributions that are credited to you when unable to work.
To preserve its buying power, the state pension rises each year to reflect trends in the wider economy. These rises are set by the triple lock, a rule that ensures the state pension will rise by the highest of three measures:
· The rate of inflation (measured by the consumer price index)
· Average wage growth
But, as with so many things, the Covid pandemic has created a significant distortion.
Millions of workers were on furlough and therefore on reduced wages as businesses scaled back during the various lockdowns. But businesses are now opening up again, which has caused an unusual spike in wage growth as workers go back to full pay. Official figures show average UK earnings grew by an annual 7.3% in the March to May period. The Office for Budget Responsibility expects this to rise to 8% in the May-July quarter, the period used to determine the state pension rise (Sky News Source)
If the government had stuck to the triple lock rules, an 8% rise would have been applied to the state pension from next April. This would have put a £3bn strain on a Treasury already struggling with a huge pandemic debt. Also, it would have been politically awkward to have pensioners benefiting at the expense of younger people who’re generally regarded as having shouldered the greatest burden during the pandemic. So, in September the government decided to suspend the triple lock guarantee for the 2022/23 tax year. With the consumer price index hitting 3.2% in August, it’s likely this will be used to determine next year’s increase.
If, on the other hand, the state pension increased by just 2.5%, the full state pension payment for 2022/2023 will be:
· £184.09 a week (£9,572.68 a year), up from £179.60 a week (£9,339.200) in the current tax year;
· Basic State pension (those who have claimed their pension before April 2016) will be £141.04 a week (£7,334.08 a year), up from £137.60 a week (£7,155.20).
The government has said that the triple lock will be restored next year, but an important lesson to take from this is: don’t solely rely on your state pension to boost your pension pot.
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The articles are for information only and should not be construed as advice or a recommendation. Please seek independent financial advice before taking any action. No action should be taken without independent professional financial advice as any actions on your pension may be irrevocable and have a big impact on your income in retirement.