State pension to rise by 3.1% in April

Pensioners could face a “squeeze” on their living standards in the next financial year, as the dip in inflation seen in today’s Consumer Prices Index means that the state pension will be uprated by 3.1 per cent in April.

Pensioners had previously faced a more than 8 per cent uplift in their state pension due to distorted earnings growth figures amid the pandemic, although the government's one-year adjustment of the state pension triple lock removed the earnings link, meaning that this will now be uprated in line with inflation.

Aegon pensions director, Steven Cameron, noted that some pensioners will be "disappointed", pointing out that the 3.1 per cent increase will be “significantly short of the 8.3 per cent increase" offered by the earnings link.

However, he clarified that this is still the third highest increase since the triple lock was introduced in its current form over a decade ago.

Despite this, Cameron warned that there are concerns that the 3.1 per cent increase may fall short of cost of living increases come April 2022, warning that with many pensioners could feel "left out in the cold”.

This was echoed by Royal London consumer finance specialist, Sarah Pennells, who suggested that the dip in inflation rate could be “bad news for pensioners”.

“There’s seems to be a divide at the Bank of England about where inflation is headed next, with warnings of inflation hitting – or nearing – 4 per cent by the end of the year,” she continued. “Rising energy costs will add to the concern that price rises will outstrip the increase pensioners see next year.”

LCP partner, Steve Webb, also argued that today’s inflation figure was “simply not a fair reflection” of the cost of living increases many pensioners will face, noting that it excludes the latest increase in the energy price cap and also misses the price hikes expected in the winter as rising wholesale energy costs feed through into prices in the shops.

He continued: “The triple lock was designed to provide security and a steady boost to UK pension levels.

"While the economic stresses and strains in the wake of the pandemic and soaring earnings rates left the Chancellor with little choice but to suspend the measurement, there is more that can be done to avert what could become a serious squeeze for many pensioners.

“With rising energy and food bills and a high inflation outlook from the Bank of England, it is clear that by the time April 2022 comes round the planned pension increase will not be enough to prevent a squeeze on pensioner living standards next year.”

Adding to this, Interactive Investor head of pensions and savings, Becky O’Connor, said that pensioners are potentially more exposed than most to rising inflation because their income is limited and a higher proportion of their spending goes on essentials, like energy.

“Older people also tend to choose lower risk investments within their private pensions and are more likely to use cash savings to avoid investment losses later in life, so are more exposed to inflation eroding the value of their wealth," she continued.

"So it is some comfort to know that at least the state pension part of their income is rising in line with inflation.

“However, the economy remains volatile and retired people will be watching to see whether inflation continues to rise. If it does, then next year’s state pension increase may still not feel big enough to cope with rising bills.”

AJ Bell head of retirement policy, Tom Selby, meanwhile, suggested that savers should give “as much as they can as early as they can”, particular given that both the amount received on state pension and the age it is received at has been subject to “significant reform” over the past

“It is therefore crucial anyone wanting control over their retirement and a standard of living above the basic minimum covered by the state pension saves as much as they can as early as they can, taking advantage of matched contributions and tax relief and allowing compound growth to work its magic over the long-term,” he said.

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