Older Britons are preparing to boost their state pension payments next year as the triple lockdown returns. However, experts warn that their income will be cut by more than £800 in 2023 in real terms despite this rise in payments. This is mainly due to the cost of living crisis which has seen inflation and energy bills soar in recent months, with further record increases on the way.
Incomes of older UK residents are set to rise with inflation hitting 10.1% and the return of the triple lockdown
The triple lock is a promise by the government to increase pension payments either in line with inflation, or average earnings, or by 2.5%; whichever is higher.
Last year, the pledge was temporarily scrapped due to the artificial inflation of earnings following the Covid-era furlough scheme.
As a result, pensioners only saw their public pension increase by 3.1%, in line with the rate of consumer price index (CPI) inflation for the year to September 2021.
READ MORE: State pension set to rise next year, but 520,000 people will miss out
With inflation continuing to rise, state pension payments are set to rise by £1,000 next year based on a rate of 10.1%.
However, research by Citigroup estimates that inflation could reach 18.6 next year.
If this becomes reality, more than 12 million pensioners will see their income reduced in real terms by £800.
This is because the increase in state pensions has remained below inflation for the second consecutive year.
DO NOT MISS
Pensioners would need to see their payments increased by £1,827 to be able to maintain the same standard of living.
As it stands, the new state pension is set to rise by £18.70 a week next year, from £185.15 to £203.85.
By comparison, the basic state pension is set to rise from £141.85 to £156.20 for those who turned 66 before 2016.
These declines in real incomes come against a backdrop of rising energy bills that exacerbate the cost of living crisis.
READ MORE: Britons in the upper bracket can do 2 main things to reduce tax payments
Earlier this week it was confirmed that the energy price cap will exceed £3,500 and current forecasts suggest the average household bill could top £4,200 in January 2023.
The cost of living crisis has increased the anxiety of retirement households who are already struggling to make ends meet.
Steven Cameron, director of pensions at Aegon, shared his concern for the future of state pensions and their relationship to inflation.
Mr Cameron explained: ‘But the longer-term question is whether, in these unprecedented times, with roller-coaster inflation, does it make sense to base increases in state pensions on a calculation of year to year.
“The use of fixed dates, well in advance of the actual increases in April, adds further unpredictability and can lead to inequalities between people of working age whose incomes may increase at a very different rate from increases in pensions. , but whose NI contributions pay for state pensions.
“Moving to a formula that averages these indicators over, say, a three-year period would still protect retirees, but would average the peaks and troughs, and arguably create a fairer and more predictable outcome for all pensioners. persons concerned.”
To help those on state pension, the government has launched a £300 payment for older households to help with the cost of living.
In addition, low-income state pensioners claiming pension credit will be eligible for the government’s £650 cost of living payment.