Despite fears for the state pension triple lock’s future amid the coronavirus pandemic, the state pension will rise under the mechanism in April 2021. This means it will increase by at least 2.5 percent.
Under the mechanism, the UK state pension rises each year by whichever is the highest out of:
- Earnings – the average percentage growth in wages (in Great Britain)
- Prices – the percentage growth in prices in the UK as measured by the Consumer Prices Index (CPI)
- 2.5 percent.
The government has now confirmed the UK state pension will increase next year by 2.5 percent.
Commenting on the news, Ian Browne, pensions expert at Quilter, said: “As expected, the government has confirmed that state pension incomes will rise next year by 2.5 percent, maintaining the minimum increase promised under the triple-lock.
“This will be welcome news for retirees and it means the Chancellor and Work and Pensions Secretary can, for now at least, avoid accusations of breaking manifesto pledges to the elderly.
“But it will be hard to ignore the fact that giving retirees an inflation-busting income rise, while simultaneously announcing a pay freeze on many public sector workers, is a difficult message.
“Pensioner spending is projected by the OBR to rise 27 percent by 2025/26 and the Chancellor may be forced to ask retirees to share some of the pain in future as the government seeks to restore fiscal stability.
“This is likely to come to a head next year, when an anomalous spike in wages – assuming there is a wage rebound after this year’s pay slide – triggers another rise in the state pension.
“The message for older people is that whilst state pension incomes are protected for the coming year, there will be big pressure on government to unpick the triple lock over the remainder of this Parliament.
“It is dangerous to rely on a guaranteed minimum rise in state pension payments every year, meaning private savings and investments will be crucial.
“If the triple lock is scaled back then it should coincide with a holistic review of state-sponsored retirement benefits.
“State pensions have been gradually ratcheted up by the triple lock in an effort to alleviate pensioner poverty, but this doesn’t hide the fact that we haven’t conducted a proper review of whether the state pension is achieving that.
“In addition, the current cost of the state pension will not go unnoticed by younger generations as intergenerational inequality had been growing even before the pandemic, and has been heavily exacerbated in the past six months.
“As all retirees of today get an uptick in their state pension, the younger generations will be wondering how this is fair given the struggles they are facing.”
However, while some will enjoy the 2.5 percent UK state pension boost, not everyone will feel the benefit.
UK state pensioners who live in certain countries overseas are unable to feel the increase.
It’s possible to claim state pension abroad if enough UK National Insurance contributions have been paid.
However, the government states the state pension will only increase each year if a person lives in:
- The European Economic Area (EEA)
- Countries that have a social security agreement with the UK (but one cannot get increases in Canada or New Zealand).
Those who live outside of these aforementioned countries will not get yearly increases.
If they return to live in the UK, the pension will go up to the current rate.