Millions of pensioners could receive a record rise to their state pension next year thanks to artificially high earnings growth.
The state pension is protected by the triple lock guarantee which means it increases every year by the highest of either average wage growth, the consumer prices index (CPI) measure of inflation or 2.5%.
The latest data from the Office for National Statistics (ONS) reveals that price inflation jumped to 2.1% in May, but average earnings are growing much faster at a rate of 5.6% in the three months to April. However, this large change in earnings growth isn’t quite what it seems and has been artificially inflated thanks to the impact of the pandemic on pay and jobs.
Here, Which? looks at whether the government will stick to its triple lock guarantee with a record rise on the cards and how much income you could get.
Why pensioners could get a record boost
The triple lock determines how much the state pension will rise by each year.
It uses average earnings data recorded for the three months to July, and September’s measure of price inflation. We don’t have that information yet, but it seems the state pension is on track for a record boost based on earnings according to the latest available data.
Recent figures show that the CPI measure of inflation rose sharply to 2.1% in the 12 months to May, up from 1.5% in April. However, the Bank of England has forecast that inflation will rise to around 3% over the rest of the year before falling back to the bank’s target of 2% next year.
Meanwhile, the latest data shows weekly wages rose by 5.6% in the three months to April 2021 and 8.4% in the 12 months to April 2021, so it’s likely that average earnings will be used to increase the state pension and for a record amount.
The ONS warns that these figures are artificially high. The 8.4% growth is down to the latest month now being compared with April 2020 when earnings were first affected by the pandemic.
A year ago, wages were depressed because of the beginning of furlough, so the current rate isn’t really a reflection of workers getting large pay increases but just that wages are returning to pre-pandemic levels.
The ONS also says that job losses in the last year have been more heavily concentrated in lower-paid sectors, which could drive up the average pay in the economy.
The ONS estimates that without these two effects the 5.6% growth figure would have been more like 3%.
- Find out more: how do I qualify for the state pension?
How much state pension could you get next year?
So there’s a high chance that the triple lock could increase state pension payments by earnings growth in 2022.
If the triple lock is raised by 5.6% for the 2022-23 tax year, the current maximum state pension of £179.60 a week would rise by £10 for those claiming under the new state pension.
But remember that what you get depends on your National Insurance record, so you could get less.
Those who get the basic state pension, which is £137.60 per week, could get an additional £7.70.
The table below shows how the triple lock has boosted the state pension since the guarantee was introduced.
- Find out more: how much state pension will I get?
Will the triple lock kick in next year?
There was speculation that the cost of a record rise would prompt the government to scrap the triple lock to help pay for the cost of the government’s Covid-19 response – but on Monday (21 June) Downing Street confirmed that this wouldn’t be the case.
According to Reuters, a government spokesperson said ‘we’re committed to the triple lock’ when asked about reports that it could be scrapped.
According to pension firm Lane, Clark & Peacock (LCP), the total spending on the elements of the state pension system, which are covered by the triple lock policy (the basic pension and the new state pension), is around £85bn and each extra 1% adds £850m permanently to the cost of paying pensions.
So a 5.6% rise means that the Treasury will have to spend £4.76bn on the state pension in the next tax year, whereas a minimum 2.5% rise (which is what it increased by this year) would cost £2.1bn.
The fate of the triple lock has been put into doubt numerous times throughout the pandemic, as there were concerns that it’s no longer affordable due to the economic implications of the pandemic. But the government has consistently said it will stick to its manifesto pledge from 2019, to keep it.
The government introduced a new Bill in September 2020 to ensure that state pension payments would rise in 2021 – previously, the triple lock had included a technical detail that said state pension payments could only rise if average earnings growth had risen. During the pandemic there was negative wage growth and would have frozen state pension payments for this year.
How can I check my state pension?
The state pension is paid to you when you’ve reached state pension age.
The amount you get depends on how many National Insurance Contributions (NICs) you’ve made during your working life.
You’ll need at least 35 qualifying years of contributions to qualify for the full new state pension and at least 10 years’ worth to get anything at all.
If you reached your retirement age before April 2016, you’ll need 30 years of contributions to get the full basic state pension.
For anyone who hasn’t yet reached the state pension age, you can use an online government tool to check your state pension forecast which will tell you how much you can get, when you can start receiving payments and whether you’re able to increase them.
- Find out more: your state pension forecast explained