The state pension will rise by 10.1 percent in just a few days, in line with September 2022’s CPI inflation figure. The return of the popular triple lock mechanism therefore represents the biggest boost ever provided to the state pension – taking the full new state pension over £10,000 for the first time.
The triple lock sees the state pension rise each year by whichever is the highest of 2.5 percent, average earnings or inflation.
High inflation has been expressed as a concern as it could make the state pension more expensive – as it has done for the forthcoming tax year.
However, fears have been compounded by a new independent report from Baroness Neville-Rolfe on the state pension age.
Aside from the retirement age debate, Baroness Neville-Rolfe made recommendations on state pension spending.
Her report suggested spending on the state pension be capped at six percent of Gross Domestic Product (GDP) – as spending is expected to surpass this point in just three decades.
The Institute for Fiscal Studies (IFS) has suggested a one year increase in the state pension age in the late 2030 would likely save around £8-9 billion a year in today’s terms.
However, delaying the planned rise in the state pension age to 68 by seven years would cost at least £50billion.
The think tank has previously warned the triple lock in its current iteration is “unsustainable”.
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With delays to a hike in the state pension age proving expensive, experts have therefore suggested the Government may have to evaluate other aspects of the state pension going forward.
This could turn attention to the triple lock which has been described as an expensive policy.
Jon Greer, head of retirement policy at Quilter, said: “The Government may be left with the choice of reviewing the triple lock and replacing it with a less generous uprating mechanism and/or accepting that funding for state pensions is going to increase through higher taxes (or national insurance).
“But it’s a question of what the general public would dislike least because we face difficult decisions.”
Steven Cameron, pensions director at Aegon, also warned the Government will be grappling with high costs amid an economic crisis.
This could increase the pressure to look for ways to save money in the future.
He added: “State pensions are not paid out of some huge fund built up over the years but on a ‘pay as you go’ basis from the National Insurance contributions of today’s workers.
“Historic trends have shown people are living on average longer, which means with an unchanged state pension ‘starting’ age, the state pension is paid for longer, adding to the costs.
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“Over the last 10 years, the state pension triple lock has also led to state pensions rising faster than inflation.
“The higher the weekly pension amount and the longer it’s paid on average increase the funding pressures on those of working age.”
The state pension will increase at the start of the new tax year on April 6, 2023.
The full new state pension will rise from £185.15 to £203.85 per week, but some will get less if they were contracted out before April 6, 2016.
The full basic state pension will increase from its current rate of £141.85 to £156.20.
The Government has vowed to maintain the triple lock until the end of Parliament.
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