National pension 2021: rising inflation could lead to changes in the payment rate | Personal Finances | Finance
Specifically, the current proposal to increase the state pension rate is seen as too “modest” in light of the surge in inflation over the past month. Former Pensions Minister Steve Webb is sounding the alarm that 12 million retirees may face financial hardship as their state pension is no longer sufficient to cover crucial living costs . Following the government’s decision to remove the triple lockdown pledge on state pensions, it has received backlash from many claimants.
Mr. Webb, currently a partner of LCP, explained how the government could deal with this situation in light of soaring inflation.
He said: âUnless the government rethinks the state’s pension increase of 3.1%, 12 million retirees could face a significant reduction in their standard of living next year.
âNot only will public pension payments fall in real terms, but private pension income will be reduced and inflation will eat away at the value of savings held by retirees in ISAs and bank accounts.
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“The government has shown that it can change short-term universal credit rates whenever it wants, and will now be pressured to rethink the modest increase in state pensions it had slated for April 2022.”
While the Department of Work and Pensions (DWP) has asserted that the state’s pension rate for next year is to be decided by Christmas, there is precedent for subsequent changes in payment rates if that is. is deemed necessary.
For example, the Chancellor announced a Â£ 20 per week increase in universal credit payments to take effect a month later, in March 2021.
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In addition, for the last budget, Rishi Sunak made massive changes to the benefit system that went into effect within weeks.
As a result, many believe that it is within the power of the government to make changes to the state pension payment rate in order to lessen the impact that inflation will have on the day-to-day cost of living.
Earlier this year, the government confirmed its intention to remove the triple lockdown pledge associated with state pensions.
The triple lock is a guarantee, introduced in 2010, that the state pension would not lose value in real terms and that it would increase at least in line with inflation.
With this commitment, state pensions are expected to increase either by the rate of inflation or by 2.5% of average wage growth.
However, due to the inflation of average incomes due to holidays, the link with wage growth in the triple lock was suspended for a year.
Those entitled to the state pension and other benefits are expected to see their payments increase by 3.1% in April 2022.
Earlier this week, the Consumer Price Index (CPI) confirmed that inflation will hit 5.1%.
In real terms, this represents a real drop in living standards of two percent, even for the UK’s poorest retirees.
On top of that, those with private pensions or company pensions are not immune to the impact of inflation, anyone who has obtained a “level” pension gets no annual increase in the pension. all.
In addition, inflation is expected to erode the purchasing power of the savings retirees hold in ISAs or other investments.
Any cash held in ISAs will earn interest close to zero due to 5.1% and rising inflation.