Martin Lewis answers question about state pension
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The policy guarantees that the state pension increases each year in line with either the rate of inflation, average earnings or at least 2.5 percent, whichever is greater. Former Chancellor Rishi Sunak put the pledge on hold after the COVID-19 furlough scheme inflated average wages, meaning it only went up by 3.1 percent last year, in line with inflation.
The triple lock is set to return next year, and with soaring inflation expected to hit 11 percent by the end of the year, retirees may see a big boost to their payments next April.
However, financial planner Rowan Harding, from Path Financial, warned that this is not set in stone.
Speaking exclusively to Express.co.uk, he said: “State pensions are due to go up as a result of the restoration of the ‘triple lock’ policy, which was suspended last year following the COVID-19 pandemic and the furlough scheme for those out of work.
“However, whether this happens or not is entirely dependent on who replaces Boris Johnson as the new Prime Minister from September, and whether they decide to stick to this policy or not.
“With the rate of inflation forecast to keep rising, it could hit some pensioners very hard to have a lower state pension increase two years in a row.”
The uprating for the next year’s state pension is determined by the September Consumer Prices Index (CPI) figure.
If the rate of inflation is 10 percent in the year to September 2022, that would lift the full new state pension from £185.15 a week to £203.67 – the first time it has reached over £200.
The rise could soon be eaten up by the rising cost of everyday essentials and bills though, as the Bank of England has forecast that inflation could further rise to 11 percent in the fourth quarter of 2022.
Mr Harding said: “The UK state pension is unfunded and classed as a ‘pay-as-you-go’ system, meaning that current and future taxpayers have to fund it.
“Whatever is decided by the government – now and in the future – will affect whether or not they can afford to increase the state pension in line with the triple lock, and keep pace with the rising cost of living.”
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Mr Harding urged Britons to have other income streams in place to support them through their later years.
He said: “My main piece of advice would be not to rely on the state pension.
“It is great to have it as a basis of some guaranteed income, but personal provision from pensions, ISAs, savings, rental income and other strategies will need to fill the gap.
“This may mean considering options and making some changes like reducing your expenditure, or considering equity release or downsizing your home.”
The Bank of England increased the base interest rate to 1.25 percent in June, in efforts to tackle the spike in inflation.
Qiaojia Li, founder of fintech firm Rosecut, told Express.co.uk that older Britons will need to review their finances even with the rise in the state pension.
She said: “I think it is important to remember that retirement needs to be earned; it is not something handed out.
“Understanding that, and then looking at the future inflation rate, the fact is that based on 35 years of National Insurance payments, the maximum you can earn at retirement is £185.15 a week which just isn’t going to suffice.
“We will all need to review our options and be more savvy.
“Just saving is unlikely to be enough.
“The rate of inflation will ultimately lessen the real-value of cash savings so there has never been a more important time to invest too.”
People can claim their UK state pension once they reach state pension age, which is 66 at the moment.
Generally, a person has to have 30 qualifying years on their National Insurance record for the full basic state pension, while this is 35 years for the new state pension – although the amount someone gets may differ from the full amount.
Emma Byron, managing director at Legal & General Retirement Solutions, said previously that the rise of the state pension is “hard to predict”.
She said: “Consumers should ensure they’ve made their own private savings provisions too, in order to ensure a good standard of living in retirement.
“We’ve seen an uptick in people withdrawing from their personal pensions early and at higher rates, potentially because incomes are under pressure.
“This is something we are monitoring closely but hopefully the reinstatement of the ‘triple lock’ will provide some reassurance and help people struggling to make ends meet.”
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