Upcoming changes to state pension in 2022
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Changes to the method used for increasing the state pension have angered British pensioners, who believe they have been unfairly left shorthanded. However, the upcoming boost appears to be one of the more generous increases in the last 10 years.
Based on the confirmed uprating of 3.1 percent and rounded to the nearest five pence, the full entitlement of the new state pension will go from £179.60 to £185.15, meaning an extra £5.55 each week.
Those entitled to the full amount of the basic state pension will see their weekly income increased from £137.60 up to £141.85, an additional £4.25.
This level of increase to the state pension came as a disappointment to many, with the triple lock temporarily suspended for the 2022/23 tax year, which otherwise would have meant a boost of more than eight percent to the state pension.
The Government took the decision to scrap the triple lock for one year because the average earnings growth figure was set to be much higher than it usually is. This is believed to be due to millions of Britons returning to work from the furlough scheme.
Furthermore, many observers had believed the state pension would have gone up by a larger amount even with the average earnings growth element removed from the triple lock. The Bank of England had expected inflation for the year to September 2021, which is the figure that dictated the state pension increase, to be more than four percent.
Despite this disappointment, pensioners are still on course for the third-largest uplift in the value of the state pension in a decade.
Recipients of the full basic state pension will pick up an extra £221 next year, while people receiving the full new state pension will get an additional £288.60
Since the state pension triple lock was introduced in the 2011/12 tax year, the rate of increase has only been higher than 3.1 percent on two occasions.
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In the 2012/13 tax year, inflation dictated that the state pension increased by 5.2 percent. At this time, the new state pension had not yet been introduced, meaning the only form of state pension was the ‘old’ version, which increased by £275.60.
An average earnings growth figure of 3.9 percent meant that the state pension increased by this amount for the 2020/21 tax year. Recipients of the full basic state pension received an extra £262.60 as a result, whereas people receiving the full new state pension got an additional £343.20.
Ian Browne, pensions expert at Quilter, commented on next year’s state pension increase and the decision to temporarily suspend the triple lock.
He said: “The state pension triple lock has been pulled from pillar to post since the beginning of the pandemic thanks to wild swings in earnings and inflation data.
“Last year, we had negative earnings growth and paltry inflation numbers. This year, we’ve had the opposite problem: booming wage growth and rampant inflation thanks to the end of the furlough scheme and reopening of the economy.
“Nothing has really changed fundamentally speaking, but the economy is playing catch-up, and this is skewing the numbers.
“Both years, the Chancellor has elected to tinker with the triple lock. Last year, state pensions were manually increased by 2.5 percent to get around a technicality in the legislation that would have blocked the triple lock given negative wage growth.
“This year, the earnings growth element has been removed to bring the uprating back down to earth. Average earnings hit 8.3 percent in the three months to July 2021, which would have been used as the uprating figure.
“Instead, pensioners will have to settle for a 3.1 percent increase in the state pension next year as a result of the latest CPI stats out today.
“While this is clearly not as good as if the triple lock was maintained in its original form, it is still the third highest uprating in the decade-long history of the triple lock, and will increase the basic state pension to £141.85 a week next year, and the new state pension to £185.15 a week.
“Removing the earnings element of the triple lock has saved the Chancellor a tidy sum, given the cost has now been reduced by £4.7billion.
“This uprating is beaten only by the 5.2 percent CPI boost in 2012/13, the first year of the triple lock, and the 3.9 percent earnings boost in 2020/21.”
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