The value of State Pension payments rises every year, thanks to a policy known as the ‘triple lock’. If the government sticks to this, retired people could see a bumper rise in the State Pension next year.
Yet, Rishi Sunak has refused to guarantee that the increase will go ahead. So, will the State Pension rise by 8% next year? Let’s take a look.
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Are State Pension payments set to rise by 8%?
If we follow the ‘triple lock’ policy set out by the government, then State Pension payments should increase by 8% from April 2022.
But in order to understand how this could come about, we need to take a look at what the ‘triple lock’ policy is.
Introduced in 2011, the triple lock is there to ensure that the UK State Pension doesn’t lose value in real terms over time. It does that by guaranteeing that payments rise each year by whichever of these three measures is the largest:
- rate of inflation (in the year to September)
- average earnings growth (in the three months to July)
- 2.5%
The Bank of England recently suggested that wages could rise by 8% this year. Average earnings growth would therefore trump the rate of inflation and the 2.5% rate and become the largest measure in this scenario.
Is an 8% pension rise likely to happen?
Government finances are understandably tight following the coronavirus pandemic. An 8% rise in State Pension payments would cost the taxpayer between £3 billion and £4 billion.
As a result, the chancellor has said that such a big increase next year could be scrapped as voters won’t consider it “fair”.
In fact, he said, “it’s wrong to make a policy based on speculation. We should wait for the actual numbers to be finalised”. This will happen in the autumn.
The crux of the problem is that the numbers this year are skewed. Lots of low-paid workers lost their jobs during the pandemic. Therefore, the average wage growth is being driven by higher-paid workers and is rising much faster than usual.
If the government does decide it’s an anomaly, then they do have the option to decide to break the link and give a smaller rise to pensioners. In this scenario, the likelihood is that they would base how much to increase payments by on either the rate of inflation or the specified rate of 2.5%.
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What can I do to secure my retirement income?
Not knowing what your State Pension payments are going to be is understandably unsettling. But in reality, the UK State Pension is not really enough to retire on.
Therefore it’s a good idea to start reviewing your finances early and look at other ways to secure your retirement income.
This could be saving into a workplace or personal pension plan. Or it could mean looking at growing your retirement savings through an investment vehicle like a stocks and shares ISA.
While investing in the stock market carries risk, and returns are not guaranteed, investing with a long-term view can often grow your wealth over time.
For more information on how to secure your financial future, check out our article offering six retirement planning tips for 2021.
