Earlier this week, Chancellor Rishi Sunak confirmed the triple lockdown would be reinstated next year after a one-year temporary suspension. The triple lock is a promise by the government to increase state pension payments by either the average wage rate or inflation, or by 2.5%; whichever is the highest. Following the suspension, the state pension rate only increased by 3.1% last year, in line with inflation from September 2021.
However, inflation is currently at a 40-year high of 9% and is expected to reach 10% in the coming months.
Emma Byron, managing director of Legal & General Retirement Solutions, explains why the triple lock is an essential part of the state pension payment system.
Ms Byron explained: “As the cost of living crisis continues to bite, this decision is good news for the many people who depend on the state pension to meet their income needs.
“It is, however, a powerful reminder that the state pension is difficult to predict.
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“Accordingly, consumers should ensure that they have also built up their own private savings, in order to ensure a good standard of living in retirement.
“We have seen an increase in the number of people withdrawing from their personal pension early and at higher rates, potentially because incomes are under pressure.
“It’s something we’re watching closely, but hopefully reinstating the ‘triple lockdown’ will reassure and help people who are struggling to make ends meet.”
In response to the dire financial situation facing many households, the government recently introduced a series of financial support payments to support pensioners in the face of recent increases in inflation.
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People receiving means-tested benefits, such as Universal Credit, will be entitled to a one-off cost of living payment worth £650.
In addition, pensioners should automatically receive a payment designed especially for them, which will amount to £350.
On top of this, the government has announced a universal rebate on energy bills worth £400 which will replace the ‘buy now, pay later’ loan introduced earlier in the year.
This means low-income pensioners could claim more than £1,500, according to a pensions expert.
Steven Cameron, director of pensions at Aegon, said: “Those receiving state pensions will be relieved to hear the Chancellor announce new targeted support measures to help them reduce the cost of living this winter.
“The government says low-income pensioner households could receive a total of £1,500 in additional one-off support payments this year.
“Of this, £650 will be paid to those in receipt of a pension credit, so it becomes more important than ever that those eligible for this benefit ensure they claim it. If you do not receive pension credit, the additional support is £850.
“The state pension rose in April by just 3.1%, after the triple-locking formula was changed, well below inflation which is now 9%.
“If the state pension had been increased by this amount, a person entitled to the full rate would have received a weekly state pension of £195.75 per week, which is £10.60 above the actual level of 185 ,15£. This leaves an individual’s purchasing power £551.20 per year less.
“The good news is that the £1,500 payment to the poorest pensioner households will more than offset this, even in households with two pensioners. For those not receiving pension credit, the £850 will also be a welcome boost.
“Pensioners will be reassured by further confirmation of the government’s commitment to reinstate the triple lockdown of state pensions. If September’s inflation rate is 10%, that will mean an increase in the state pension of £18.50 a week from April 2023.”