The UK government’s decision to suspend the triple lock on the State Pension may have been rather premature. In April, pensions will go up by 3.1%. However, UK inflation is forecast to reach almost as high as 8% by then.
Some pensioners may struggle to keep their finances afloat in the coming months for three main reasons.
1. The triple lock on State Pensions won’t protect against inflation
First of all, April’s increase is well below the current rate of inflation, which is 5.5%. This is because the percentage is calculated based on Consumer Price Index figures from six months before the uplift is actually applied.
Secondly, the UK government decided to suspend triple lock protection to avoid an increase in pensions in line with wages. After the lockdowns, there was a spike in average pay which the government wanted to ignore, for this year at least.
According to the triple lock, the State Pension should rise in line with inflation, wages, or 2.5% – whichever is highest. With the triple lock still in place to match average wage inflation, the State Pension would have gone up much more. As things are now, this would have helped to keep pace with inflation as well. Without the triple lock, the State Pension will add up to around 5% less than it should be, exceeding only the lowest lock (2.5%), rather than matching the highest.
So the triple lock is a triple fail this year:
- The actual increase based on inflation was underestimated.
- The safety net of 2.5% is well below the rise in both wages and inflation.
- The government has removed the link between wages and the State Pension.
2. Inflation hits low-income pensioners harder
The State Pension will increase by around £5 per week in April. It doesn’t pay for much more than the basics. Unfortunately, the prices of some basic items have been rocketing. The cost of a weekly shop may go up by more than £5 in the coming months unless retirees make some swaps to cheaper items and brands.
On the State Pension only, there may not be many ways to save that haven’t been tried already. Pensioners with additional sources of income will need to cover what is effectively a decrease in income.
3. Rising energy costs a source of worry on a State Pension
One rise that particularly affects pensioners is energy costs. More likely to be at home all day, people on the State Pension need to keep their heating on and many rely more on appliances.
While the government is introducing schemes to offset energy price increases, this adds to a confusing patchwork of measures. There may be help available for pensioners with energy costs but the situation will cause stress and a sense of insecurity at least.
How to protect an income reliant on the State Pension
For pensioners who have not been able to provide extra income for themselves, it’s not too late.
- Double-check you are receiving every benefit and rebate available, such as Pension Credit or the Warm Home Discount. You could call Independent Age for advice on this.
- Consider earning a little money, if possible, to top up the State Pension.
- Create a budget. Saving a little here and there might help you to beat inflation until it is under control again.
If you’re not old enough to claim the State Pension yet, it’s clear that making sure additional forms of income are available when you retire is a good move. This could be a workplace or private pension. In addition, set up a long-term savings plan. For some, investing is a way to build up wealth for retirement years.
It’s important to make sure that you are not facing unmanageable credit card debt on the State Pension, so consider switching to a 0% balance transfer credit card if you are approaching retirement.
The State Pension will struggle to carry any extra baggage from debt, so it’s a good idea to get help now if this is a problem.