"Rishi Sunak faces state pension conundrum"

Retired people are set to receive a 4.1% rise in the state pension in April 2022, an official forecast predicts



The state pension is going up by 2.5% in April 2021, but the bigger forecast rise in 2022 will come at a time when unemployment is expected to be high.

Chancellor Rishi Sunak will face a balancing act between keeping to a manifesto promise while addressing claims of intergenerational unfairness.

The UK state pension remains one of the less generous in Europe.

Near the end of each year, the government sets the level of state pension to be paid from the following April.

The increases each year are in line with the rising cost of living seen in the Consumer Prices Index (CPI) measure of inflation, increasing average wages, or 2.5%, whichever of those three is highest.

This is known as the triple lock, and is a Conservative manifesto promise until at least 2024.

So, in April next year, the state pension will rise by 2.5%.

In its official forecast for the following year, the Office for Budget Responsibility (OBR) expects the state pension to go up by 4.1%, a rise of about £7 a week.

This is based on its estimates of wage growth, and reflects the expectation of a rebound in wages for those still in work, many of whom had been on furlough.

But it is likely to coincide with a time when young people, particularly, are feeling the economic effects of the coronavirus outbreak and unemployment is predicted to be at relatively high levels.

The rise is not as high as previously predicted. At one point, the OBR said the state pension increase percentage could be in double digits.

Former pensions minister, Sir Steve Webb, said that the chancellor faced a "big challenge".

One option for Mr Sunak, he said, was to spread a rise over two years, rather than one.

However, he said the state pension was still "far from a King's ransom".

"It is particularly important for those who do not have much in company or private pension, often women and low earners," said Mr Webb, now a partner at pension consultants Lane Clark and Peacock.

He added that it would be all the more important for young people, who may struggle to build up a private pension now, to expect a healthy state pension in later life.

Journalists seem to have forgotten that:

• The original purpose of the triple lock was to correct a historic anomoly which caused pensions to fall drastically as a proportion of earnings.
  
• The basic state pension (as opposed to the "new" state pension) is still much lower than the level of means-tested benefits.

For those reasons pensions should be increased much faster than the rate of earnings.

The 4.1% forecast is wildly optimistic in any case as it assumes a sharp recovery in an economy which has been totally destroyed by Johnson's lockdown. It wouldn't surprise me if the British economy NEVER recovers and yes, I AM being serious!

Gov't confirms 2.5% state pension increase in 2021



The government has committed to the state pension triple-lock for 2021 with an increase of 2.5%.

In a written statement published today, secretary of state for work and pensions Thérèse Coffey confirmed state pensions will be increased by 2.5% on 12 April 2021 in line with the government’s commitment to the triple-lock in its manifesto, taking the full rate of the new state pension to £179.60 per week.

Pension credit will also increase by the same cash amount as the basic state pension, rising by 1.9%.

‘The Social Security Act 2020 enables me to increase the basic and new state pensions and the standard minimum guarantee in pension credit by providing a discretion to increase them for one year, even though there has been no growth in earnings,’ Coffey said.

Steve Webb, partner at consultancy Lane Clark & Peacock (LCP) and former pensions minister, said this was ‘expected’ and that the ‘real test’ of this policy will come in April 2022, when the triple-lock formula ‘could easily imply an increase of 5% or more’.

‘At that point, [the government] may well decide to go for a “smoothed” approach, looking at the two years as a whole, to avoid a spike in pensions.’

Elsewhere in today’s Spending Review, the Office for Budget Responsibility (OBR) revised down the cost of the state pension this year by £600m, due to an increase of excess deaths.

The OBR said it expects excess deaths to reach 90,000 this year, up from its previous forecast of 62,000, with the increase due to a rise in Covid-19 infections.

Interesting that Pension Credit - which is the main top-up payment for many basic state pensioners - has NOT been increased by 2.5% but only by 1.9%, although both increases fall well short of the £20 a week bonus currently being paid to Universal Credit claimants.