State pension set for biggest hike in 10 years

Wages set to rise by 4.6%, meaning the retirement benefit could soar too.

Retirees could receive a 4.6% boost to their state pension next year, the biggest in a decade, as wages are set to increase rapidly.

The state pension is increased each year using a calculation known as the triple lock.

The payments will rise by the highest of average wages, the consumer prices index or 2.5%.

It is already scheduled to rise by 2.5% next month, from £175.20 per week to £179.60.

But forecasts from the Office for Budget Responsibility suggest wages could grow by 4.6% later this year as the UK emerges from lockdown restrictions.

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The state pension would therefore also rise by this amount in April 2022. That could mean weekly payments increase to £187.86.

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The government has also made extra efforts to support the triple lock, despite the cost to the Treasury or taxpayer running into billions of pounds.

Ministers were facing a tricky situation last September when deciding on increasing the payments in April 2021, as the coronavirus pandemic had limited earnings growth.

There is a technical detail in the current rules that says if earnings growth is negative, state pensioners get no increase. This would have frozen payment rises for those on the state pension.

To avoid this, the government introduced The Social Security (Up-Rating of Benefits) Bill that removed any legal barriers to increasing the payments, and these were allowed to rise by 2.5%.

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Rebecca O’Connor, head of pensions and savings at interactive investor, says the triple lock shouldn’t be seen as divisive issue between generations.

“The triple lock is designed so that pensioners who can no longer work to earn money are able to keep up with the cost of living in retirement.

“Without it, the risk is that their income would stay the same even if prices and wages were going up elsewhere in the economy. This would erode the value of a state pension over time – potentially to the point where it could become worthless.”

O’Connor says that younger people would suffer the most if the value of the state pension was eroded.

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She adds: “This would mean more pressure on people who are working now to build up more in their work or personal pensions for themselves, so they are not dependent on the state in retirement.

“It’s not a case of pitting today’s pensioners against workers when thinking about who needs more government support from benefits – this is not a case of robbing Peter to pay Paul.

“Working people today are tomorrow’s pensioners and they will suffer most if the value of the state pension is eroded over time.”