Pensions triple lock scrapped for millions of Brits
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The traditional triple lock is to be temporarily suspended for next year, meaning pensioners will not see as much of an increase as they were expecting. However, a sizeable boost to the state pension could still be on the cards.
The value of state pension appeared to be on course for an increase of eight percent or more under the triple lock, but the Government subsequently announced they would not be honouring the policy in its usual form for the 2022/23 tax year.
Due to surging inflation rates in the UK, retirees could still stand to benefit from a decade-high increase to their weekly income, as some have predicted a rise in the value of state pension of as much as four percent.
The most recent figures for inflation revealed that prices in the UK rose by 3.2 percent for the year to August 2021, and the Bank of England is of the belief that this could rise to more than four percent for the year to September.
The rate of inflation for the year to September, to be releaesed next week, will be the figure used to decide how much the state pension increases by next year, providing it comes in at more than 2.5 percent as it is expected to.
Inflation had been at just two percent for the year to July, with the 1.2 jump between July and August representing an all-time high for a month-to-month increase.
The full new state pension is currently valued at £179.60 per week, affording pensioners up to £9,339.20 each year. The full basic state pension is £137.60 a week, which means a total yearly income of £7,155.20.
If the state pension did increase by four percent, it would mean retirees receiving the full basic state pension would get £186.78 each week, an increase of £7.18 on the previous amount. They would pick up an extra £373.36 per year in this scenario.
Those receiving the full basic state pension would see their weekly income boosted to £143.10 each week, an extra £5.50. Over the course of a year, that would mean additional income of £286.
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The state pension triple lock is a Government guarantee which aims to help pensioners maintain their spending power over time as the cost of goods and services rises with inflation. It has been in place since 2010, when it was first introduced.
The terms of the triple lock are that the value of state pension must increase every year by either the rate of inflation, the rate of average earnings growth, or 2.5 percent, with the highest of the three figures being the method used.
It appeared on this occasion average earnings growth would be the highest number, meaning this would be the figure used to increase the state pension for the 2022/23 tax year, but that will now not be the case.
The rate of average earnings growth was extremely high compared to previous years, believed to be because of economic factors relating to the COVID-19 pandemic such as people’s incomes increasing drastically due to coming off the furlough scheme.
Because of this, the Government believed the average earnings growth figure was being artificially inflated. They therefore took the decision to ignore this element of the state pension triple lock for next year.
This means millions of pensioners will see their income increase by less than they originally expected, which has prompted an angry reaction from retirees who feel they have been left shorthanded.
The Government stressed that this is purely a temporary measure and the triple lock will return as normal from the 2023/24 tax year, but by failing to honour the policy on this occasion, a 2019 manifesto pledge has been broken.
It was the second manifesto promise broken in the same day, as Prime Minister Boris Johnson also announced that National Insurance would be increased, something the Government had committed to not doing during their most recent election campaign.
Mr Johnson admitted promises had been broken, saying: “No Conservative Government ever wants to raise taxes and I will be honest with the House, yes, I accept that this breaks a manifesto commitment, which is not something I do lightly.”
However, he blamed the pandemic for these issues, saying “a global pandemic was in no-one’s manifesto and I think the people of this country understands that in their bones and they can see the enormous steps this Government and the Treasury have taken.”
Therese Coffey, the Secretary of State at the Department for Work and Pensions announced the alteration to the triple lock, and said it has been done to stop pensioners unfairly benefitting from a statistical anomaly.
She explained: “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.”
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