The government has confirmed that the state pension will increase next year under the triple lock, which has been maintained for the 2021-22 tax year.
Over the past few months, there’s been widespread speculation that the guarantee – which boosts state pension payments each year – would be scrapped by chancellor Rishi Sunak, amid concerns that it’s no longer affordable due to the economic implications of coronavirus. Moreover, a technical detail could have seen the benefit frozen even under the triple lock rules.
However, the government says it wants to ensure pensioner incomes are protected during the pandemic. Here, Which? explains how the triple lock works and looks at how much state pension you could get next year.
How does the triple lock work?
The state pension triple lock system was introduced in 2010, to ensure state pension payments would keep up with rising prices and average earnings.
Under the triple lock system, the state pension increases by the highest of the growth in wages, inflation as measured by the Consumer Prices Index (CPI) or 2.5%.
The government takes September’s CPI inflation (released in October) and uses the three-month average of weekly earnings from July to help work out what the uprating will be.
The table below shows how the state pension has been boosted since the triple lock guarantee was introduced.
However, under current rules, state pension payments can only increase if there’s been a rise in average earnings in the relevant period of the preceding year.
According to the latest figures from the Office for National Statistics (ONS), earnings growth was -1% in the three months to July 2020, thanks to furlough pay and reduced bonuses.
So in theory, state pension payments would have been frozen next April. However, the government has this month introduced a new Bill to ensure the technical detail doesn’t stop the state pension from increasing by at least 2.5% in April 2021.
- Find out more: your state pension and benefits
How much will the state pension increase by in April 2021?
We don’t yet know how much the state pension will be increased by next year, as September’s inflation figures have not yet been released.
However, it’s likely to be the guaranteed minimum of 2.5% – much higher than current inflation and earnings growth figures.
Inflation plummeted to 0.2% in August 2020, according to the ONS. The Bank of England has been tasked with keeping it as near to 2% as possible, but it has measured below that rate since August 2019.
Meanwhile, as mentioned above, the latest earnings growth figures from the ONS show total pay growth was -1% between May and July 2020.
How much state pension will you get paid each week?
How much you could get depends on a variety of factors, such as how many years’ worth of National Insurance contributions you’ve made, and whether you receive your state pension under the old or new system.
For instance, if you reached state pension age (SPA) after 6 April 2016 and get the full new state pension, you should currently get £175.20 per week. With an increase of 2.5% this would increase to £179.60 (rounded to the nearest 5p) next April.
If you reached SPA before 6 April 2016 and get the full basic state pension, your payments may increase from £134.25 to £137.60 per week.
- Find out more: how much state pension will I get?
Can the triple lock survive the COVID-19 recession?
The true cost of the coronavirus crisis is starting to filter through. The UK entered its deepest recession on record in August, and the Bank of England says it expects the economy could shrink by 9.5% in 2020 alone.
The government has only noted its intention to keep the guarantee for the next tax year. It hasn’t specified whether it will keep the triple lock beyond April 2022, and this is likely to depend on the economic recovery.
But there’s been mounting pressure to scrap the triple lock in recent months.
A think tank called the Social Market Foundation (SMF) suggests that scrapping the triple lock could help to ensure the financial cost of coronavirus is borne by all generations.
The SMF says that any future austerity programme mustn’t favour pension benefits over working-age welfare.
In other words, the guarantee has been criticised for creating intergenerational unfairness between working-age households, who haven’t seen much in the way of wage growth, and those who have retired.
- Find out more: how do I qualify for the state pension?