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Chancellor of the Exchequer Rishi Sunak today delivered a spending review in the House of Commons. During the speech, he provided more details on how much more money will be required in response to the coronavirus pandemic.
Figures from the Office for National Statistics (ONS) released last month show that the title for the year through September was just 0.5 percent.
With previous figures showing a one percent drop in earnings, this means that under the triple lockdown, next April basic and new state pensions would increase by two percent, according to a report by the Institute for Fiscal Studies ( IFS).
Carl Emmerson, deputy director of the Institute for Fiscal Studies and author of the article, said: “The triple lock ensures that state pension payments do not fall in real terms during periods of economic turbulence.
“There are good reasons for wanting to do this. But these pensions will subsequently also increase more rapidly in line with the earnings recovery.
“Periods of turbulence like this lead to an increase in the value of state pensions, while the standard of living of the working-age population suffers.
“At some point this will prove unsustainable. The current pandemic has highlighted this and, I suspect, brought forward the date on which the triple lockdown was lifted.”
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Steven Cameron, Aegon’s director of pensions, has considered some of the measures Sunak is rumored to be considering, as well as the implications for savers and investors.
“There has been a heated debate about the future of the triple lockdown on state pensions, which gives annual increases to the highest of price inflation, earnings growth or 2.5 percent each year,” he said.
“The government seems to have committed to maintaining this at least until next April, fulfilling its Manifesto commitment prior to the elections.
“But given that earnings growth is likely to be very volatile for the foreseeable future, and with the prospect of a public sector wage freeze, this could prove too costly in future years, as each one percent increase will add £ 1 billion to the ‘pay as you go’ bill met by wage earners below the state pension age in each future year.
Commenting on the state pension after the Spending Review, Steven Cameron, Aegon’s pension director, said: “State retirees can breathe a sigh of relief now that the government has confirmed that they are meeting their Pre-Election Manifesto commitment to the triple blockade of state pensions. which means an increase of 2.5 percent, well above price and earnings inflation.
“With the huge financial impact of COVID-19 presented alongside today’s Spending Review, many had wondered whether it was affordable or fair to stick to a pre-pandemic formula.
“Today’s state pensions are paid out of contributions to the National Insurance of today’s workers, many of whom have suffered and continue to suffer economically during the pandemic.
“Each one per cent increase in the state pension adds around £ 1 trillion to the ‘pay as you go’ bill paid by wage earners below the state pension age in each future year.
“The big question now is whether the triple lockout will survive another year.
“Earnings growth is likely to be distorted and highly volatile for the foreseeable future, further exacerbated by the public sector wage freeze.
“A scenario with a drop in earnings next year followed by a strong recovery the next could cause the triple lock formula in that year to produce a big increase in state pensions, while workers could simply be returning to levels. payments prior to COVID.
“For reasons of intergenerational fairness, we think it may be necessary to introduce some smoothing into the formula.
Becky O’Connor, Director of Pensions and Savings at Interactive Investor, also shared her reaction with Express.co.uk.
She said: “The big picture of the UK economy and our own personal finances from today’s Spending Review is that things could get worse, before they get better, and unemployment is not expected to peak until the middle of next year. “.
Addressing the triple lockdown mechanism of state pensions, Ms O’Connor continued: “The government has committed to maintaining the triple lockdown state, which ensures that retirees’ income will increase through inflation, earnings or 2.5 percent. , whichever is greater. For now.
“However, it is such an expensive warranty that it can still be revised the following year.”
“Remember that increases in the state pension benefit not only today’s retirees, but future generations of people who receive the state pension.
“It looks like there will be an increasing reliance on the state pension in the coming years, as current workplace pensions are less generous than old-style final salary schemes.”
In the HM Treasury policy costing document, dated November 2020, there is a measure to ensure that the cash increase in the Minimum Standard Guarantee (SMG) element of the Pension Credit is increased by 1.9 percent in 2021-22.
For single people with Pension Credit this is an increase of £ 3.35 per week and for couples with Pension Credit this is an increase of £ 5.10 per week, effective from April next year.
“This increase will reassure pensioners who receive the loans,” said Ms. O’Connor.
How much is the full state pension?
The state pension is a contributory benefit, which means that the amount a person can receive depends on their national insurance history.
Currently the new full state pension is £ 175.20 per week.
Meanwhile the full basic state pension is £ 134.25 per week.
These rates increased earlier this year in April 2020 by 3.9 percent, an increase linked to growth in wages.
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