Next April’s increases to State pensions will now follow a less expected, and less expensive, path.
What percentage increase should apply to State pensions in 2022?
For the last ten years, the triple lock has protected the old basic State pension and the new State pension, meaning the increase is the highest of the CPI change to September, earnings growth or 2.5%. However, the triple lock is not law: the statutory rules simply link rises to earnings growth.
Even that is not straightforward, because the method of measuring earnings growth is left for the Secretary of State at the Department for Work and Pensions (DWP) to determine. The practice to date has been to use the year-on-year increase in average weekly earnings (including bonuses) in the May–July period. In 2020 the pandemic produced a 1.0% drop in earnings.
As the UK economy has recovered, earnings have rebounded. Some of the rise is a statistical quirk, but the net result is dramatic. The latest (April-June) annual rise was no less than 8.8%. If that had been applied to the basic and new state pensions, the cost would have been over £4bn extra a year according to the DWP.
The Prime Minister was reluctant to renege on his triple lock manifesto pledge. It was perhaps no small coincidence, therefore, that on the day increases to national insurance contributions were announced to fund health and social care reforms, the DWP revealed next year’s basic and new State pension increases would ignore earnings inflation: for 2022/23 only, the triple lock becomes a double lock.
You can check a forecast of your expected State pension on www.gov.uk/check-state-pension. Assuming 3% CPI inflation, the new State pension will rise to about £185 a week rather than the £195 it might have been. Even the latter is still a long way from enough for a comfortable retirement…
Production
