Hope for pensioners as inflation surges – how much could state pension payments rise to?

Inflation has shot up to a staggering 3.2 percent in annual terms, an all-time high since inflation data was first recorded in 1997. As the triple lock will be temporarily suspended next year, the value of state pension will rise by either 2.5 percent, or the rate of inflation – whichever is higher.

Pensions commentator and former Member of Parliament Sir Steve Webb gave his thoughts on the news, saying it could be a positive development for pensioners as the state pension looks set to rise by more than the lower limit of 2.5 percent next year.

He tweeted: “This month’s surge in inflation makes it pretty certain that the state pension rise in April 2022 will be over 2.5 percent and therefore will be whatever next month’s CPI figure comes out at.”

The state pension will not rise by the figure from this month, with next month’s rate of inflation deciding whether the value of state pension will be 2.5 percent or higher. Last month, the annual inflation figure for the year to July came in at two percent, which is the rate that the Bank of England targets.

Kate Smith, Head of Pensions, at Aegon said: “Following the slowdown in July, inflation increased steeply in August to 3.2 percent, largely driven by increases in the prices of recreation and restaurants, following the government’s ‘Eat Out to Help Out’ scheme last summer.

“Today’s figures come one month ahead of the all-important inflation figure for September which will confirm how much the state pension increases by in April. Following the one-year suspension of the ‘triple lock’, the state pension will increase by the higher of September’s inflation figure (published October) or 2.5 percent. With CPI rising steeply in August and expected to continue this path to the end of the year, state pensioners could see a substantive increase in payments in April, even with the earnings element of the triple lock stripped out.

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“The state pension has only seen an above-three percent increase three times since the triple lock was first used as the uprating mechanism a decade ago.

“If inflation next month is the same as today’s rate, then pensioners receiving the full new state pension will see an increase in weekly payments from £179.60 to £185.35, and those on the basic state pension will see an increase from £137.60 to £142 per week. However, if inflation rises further, a rate of 3.5 percent would mean the new state pension will increase to £185.90 a week and the basic state pension will increase to £142.40 a week.”

July’s figure was down from 2.5 percent in June, which represented the highest annual inflation rate for almost three years. But that record was smashed by Wednesday’s announcement of a 3.2 percent inflation figure for the year to August 2021.



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