How much is the state pension and how much will it rise next April?
OLDER Brits could see their state pension increase by as much as 8% next year.
It’s linked with wider wage growth as a result of people returning to employment as lockdown restrictions lift.
The state pension amount is calculated using the triple lock formula.
The triple lock sets an increase to weekly payments based on the higher of three things: average wages, the consumer prices index (CPI) or 2.5%.
Here we explain how much you could get when it rises next April.
The state pension is a weekly payment from the government that is given to men and women aged over 66.
Top tips to boost your pension pot
DON'T know where to start? Here are some tips from financial provider Aviva on how to get going.
- Understand where you start: Before you consider your plans for tomorrow, you’ll need to understand where you stand today. Look into your current pension savings and research when you’ll be eligible for the state pension, and how much support you’ll receive.
- Take advantage of your workplace pension: All employers are legally required to provide a workplace pension. If you save, your employer will usually have to contribute too.
- Take advantage of online planning tools: Financial providers Aviva and Royal London have tools that give you an idea of what your retirement income will be based on how much you’re saving.
- Find out if your workplace offers advice: Many employers offer sessions with financial advisers to help you plan for your future retirement.
It is due to rise to 67 by 2028 and 68 between 2037 and 2039.
The payments are changed each year using the triple lock to ensure that pensioner spending power remains in line with the cost of living.
They are set each Autumn, typically in September and paid from the start of the following tax year in April.
How much is the state pension?
The state pensions is currently £179.60 per week.
That means you could get £9,339 from the government to top-up your income during the year.
The actual amount you receive will depend on your national insurance record.
The full £179.60 state pension is only paid to those with a minimum 35 years national insurance contributions.
You need a minimum of 10 years national insurance contributions to get any payments.
It is possible to make voluntary national insurance contributions to top up your record, usually from the previous six years.
How much will the state pension increase by?
The state pension increased by 2.5% for April 2021 using the triple lock formula and rose by 3.9% in 2020 based on wage growth.
Experts are predicting that the payments could rise by record levels next year – maybe even as much as 8%.
That’s because the rate of wage increases as the UK comes out of lockdown and people return to work is higher than in normal times.
Office for National Statistics data showed that the CPI measure of inflation hit 2.1% in May.
But it also released wage growth figures showing earnings in the three months to April were up 5.6%.
The earnings figure will be used to work out state pension payments under the triple lock system if it is still higher later this year.
Based on these figures, the state pension could rise by £10 per week if wage growth remains at 5.6%.
That would mean pensioners receive £189.60 per week or £9,859 per year, which is £500 more than what they currently get.
Forecasts from the Office for Budget Responsibility have previously suggested that the triple lock could mean pensions rise by as much as 4.6% next April.
That’s based on wage growth in the coming months as lockdown restrictions ease.
But The Bank of England has suggested it could be as much as an 8% rise now.
The OBR also predicted that state pension payments could hit more than £200 per week over the next four years based on the benefit rising by 2.7% in 2023, 2.5% in 2024 and 2.6% in 2025.
This could be seen as expensive for the government and unfair for younger generations, many of whom have been furloughed, faced pay cuts or lost jobs over the past year.
It may also put pressure on the government to review how the triple lock is used.
Former pensions minister Steve Webb, now a partner at consultancy LCP, said the UK state pension is still one of the lowest in the western world so no-one is going to get rich off it regardless of an increase.
He told The Sun previously: “The chancellor does need to balance a big pension increase against other spending priorities which may also matter to pensioners, such as the NHS and social care.
“Most people would think that if the headline earnings figures are distorted by the pandemic it would be reasonable to look at a more accurate figure to use for the next pension uprating rather than slavishly following the triple lock formula which was written for a different time”.
Rebecca O’Connor, head of pensions and savings at Interactive Investor, suggested the Treasury should try to smooth out strange years of data rather than reviewing the whole triple lock..
She had said: “It is very likely that this is a one-off boost caused by a highly unusual increase in wages following the impact of lockdowns and furlough in 2020.
“This was a very extreme set of circumstances, which has had the odd side effect of a potential boost to state pension income next year.”
She predicted that it is unlikely wage growth will drop significantly over the summer or by September but said inflation could also rise, adding: ” Either way, the increase is likely to be higher than 2.5%.”
Most read in News Money
We’ve rounded up everything you need to know about when you can retire in the UK and how you can claim a state pension.
The rise comes as the pension age for men and women increased to 66 on October 6, up from 65.
For some women, this will be six years after they were originally told they would be able to claim their retirement fund aged 60.
* Read the full story...This article was originally published h
Who will be Next to leave the EU? Check out who is leading in our exclusive poll Poll
Comments
Post a Comment