State pension rise still locked

Post by Mearns & Company in News

The main state pensions will have risen faster than inflation by April 2021, but these state benefits are still low compared with even average earnings.

The new state pension (for those who reached state pension age (SPA) after 5 April 2016) will rise to £179.60 a week in April 2021 and the old (basic) state pension (for those who reached SPA earlier) will be £137.60 a week. Both increases are 2.5%, a rate secured by the so-called ‘triple lock’, which requires these pensions to rise by the greater of:

• the increase in average earnings;
• the rise in prices (as measured by the consumer price index (CPI)); and
• 5%.

Other state pensions, such as the state second pension, rise in line with the CPI, meaning a 0.5% increase from April this year.

The 2.5% increase underlines the value of the triple lock, which this year delivers state pension recipients an increase of 2% above inflation. The new state pension and National Living Wage (NLW) both came into effect in April 2016, but 2021 will be the first year that the pension has been the faster growing of the two (by 0.3%), although this does little to narrow the significant gap between them.

According to research from the Organisation for Economic Co-operation and Development (OECD), the UK sits at the bottom of the state pension league table for OECD members – although the new state pension is higher than its predecessor. This lowly position explains why the government has placed so much emphasis on automatic enrolment in workplace pensions since 2012. Similarly, it demonstrates the need for additional private pension provision regardless of any increase to the state pension.

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