State pension could rise by up to £746 next year as wages surge 8%

OLDER Brits could be set for a £746.20 annual boost to their state pension payments next year.

The rise is linked to the latest wage growth figures and the way the state pension is calculated.

The flat rate state pension is a weekly payment from the government for men and women aged over 66 that is meant to provide older Brits with a basic level of income.

It is currently £179.60.

The payments are changed each year using a formula called the triple lock to ensure that pensioner spending power remains in line with the cost of living.

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%.

It is set each September based on earnings between May and July and is then applied at the start of the following tax year in April.

The triple lock has previously been branded as unaffordableand Chancellor Rishi Sunak has come under increasing pressure to tweak the guarantee to save the Treasury money.

Experts are now warning that the latest UK earnings figures could give pensioners a bumper boost to the benefit as annual comparisons with the pandemic during 2020 make wage growth appear higher.

The latest Office for National Statistics data shows average weekly earnings in the three months to May rose by 6.6% annually or 7.3% including bonuses.

Total pay in May alone was up 8.6% annually or by 5.6% when adjusted for inflation.

Analysis by investment platform AJ Bell showed that an 8% increase in the state pension would mean weekly payments rise by £14.35 to £193.95 per week.

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  • 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.
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This would give older Brits extra income of £746.20 per year, which would be a total of £10,085.40 just from the state pension.

AJ Bell said the government usually takes the three months to May figure, which could mean a 6.6% rise.

This could mean an extra £10.80 per week in pensioner's pockets, giving them weekly payments of £190.40 and £9,900 a year.

Tom Selby, senior analyst at AJ Bell, said this will put added pressure on Mr Sunak to amend the triple lock.

He said: "Chancellor Rishi Sunak faces being caught between the devil and the deep blue sea on the state pension triple-lock.

"While the policy could add billions of pounds to public spending at a time of severe fiscal pressure for the country, unpicking it would break a manifesto commitment.

"If average earnings spike by 8% in the three months to July, which looks entirely plausible based on the current data, this could increase the value of the flat-rate state pension by £746.20 to over £10,000 a year, or £193.95 per week."

Former pensions minister Steve Webb suggested Mr Sunak could look for ways to amend the earnings figure in the triple lock to minimise how the pandemic has distorted wage growth.

Mr Webb,  now a partner at consultants LCP, said Mr Sunak could ask the ONS to calculate an ‘underlying’ earnings growth figure, which would range from 3.2% to 4.4%.

He said: "The Chancellor may well be tempted to use an ‘adjusted’ average earnings figure for the April 2022 uprating as this might ‘get him off the hook’ this time round. 

"But if he does so he should also re-commit to a strategy of building up the value of the state pension thereafter.  This is particularly important to growing numbers of women who have worked in the private sector, who may have very modest workplace pensions and are heavily dependent on the state pension.”

Sarah Coles, personal finance analyst for Hargreaves Lansdown, said younger Brits may feel short-changed if pensioners are getting a boost while they have struggle with jobs and wage cuts during the pandemic.

But she said everyone will benefit from a higher state pension in the long-run.

She said: "If state pension survives in its current form, the rise would eventually filter through to everyone, so taxpayers who are footing the bill today would benefit from a better state pension when they eventually retire."

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 last October, 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.

 

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