The UK state pension is set to be increased by 3.1% in 2022.
Following the release of September’s Consumer Price Index (CPI) inflation figure, pensioners can now assess what uplift they will receive from April next year.
It means those on a full new state pension will receive a rise of £5.55-a-week, resulting in an increase from £179.60 to £185.15 a week if approved by government.
The government has rowed back on a manifesto promise to preserve the pension triple lock, which could have seen a rise north of 8% in line with average earnings.
Instead, ministers announced a suspension of the triple lock and the removal of the average earnings element which has been distorted due to the Covid pandemic.
Pensions for next year will be determined by the CPI inflation rate or 2.5%, which is higher.
The decision to remove average earnings from the triple lock will reportedly save the Treasury £4.5 billion as a result.
What is the state pension?
The state pension is an amount of money issued regularly by the government to most people who reach the required age to start making claims.
It depends on a number of factors such as when you were born, with the age threshold increasing, and how much in national insurance contributions you have made.
The current state pension age for men and women is 66. The age threshold is scheduled to rise to 67 between 2026 and 2028, and is expected to increase to 68 from 2037.
It means anyone born after 6 April 1978 will not be eligible for a state pension until they turn 68.
How much did the state pension increase in 2021?
Under the triple lock ruling, pensions increase each year to maintain value against inflation.
The triple lock ensures an increase each year by whichever is the highest out of the average percentage of wages growth in the UK, the percentage growth in prices in the UK, or 2.5%.
State pension payments are set to increase by 2.5% for men and women over the age of 66 - up from £175.20 per week, which amounts to £759.20 a month and £9,110.40 per year.
When did the state pension increase?
The state pension increase was brought in from the week beginning 12 April 2021.
People over the age of 66 on the full state pension will see an increase of 2.5% to their weekly sums, equating to a weekly rise of £4.40 on £175.20 to £179.60.
This means pensioners claiming the full state pension will receive a boost of £19.01 a month, which works out at a £228.80 rise over the 2021/22 financial year.
Why is the pension triple lock under threat?
Since the triple lock on pensions was introduced, the state pension has increased 35 per cent while average earnings have risen by 27 per cent, reports the i newspaper.
The balancing act comes as the state pension was seen to be neglected for many years before a guarantee was introduced in 2010 to ensure its value was maintained.
Yet the mounting costs of the Covid pandemic has the government in a tricky position, with national insurance contributions set to rise and the removal of the universal credit uplift.
The furlough scheme has distorted wages over the past 18 months, meaning if the pension triple lock was to be imposed pensioners could see a rise of around 8 per cent.
Not only would this cost the UK government in excess of £3 billion but it would also be difficult to defend from a political standing, at a time workers are expected to pay more in taxes.
What is a private pension and when can I access it?
Private pensions are a way for people to save additional money for later in life through regular contributions made by themselves or their employers, and are separate to the state pension.
An ongoing review into private pensions is likely to result in savers having to wait an additional two years before accessing their retirement pots, due to the state pension age threshold rising.
People can access defined contribution pensions, a percentage of earnings accumulated over time in employment dependent on investments, typically 10 years earlier than state pensions.
The age threshold had been 55 but will increase to 57 from 2028, according to plans set out by the treasury, in line with the expected increase in age people have to wait for the state pension.
Tom Selby, senior analyst at AJ Bell, said: “The rise in the normal minimum pension age from 55 to 57, which has been long trailed by the government, is designed to reflect rising life expectancy, and will maintain a 10-year gap between the point someone can access their private pension and the state pension age.”
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