Pensions - Articles - Rate rise means state pensioners in for rollercoaster ride


During macroeconomic volatility, moving to formula which averages out peaks and troughs could create a fairer outcome for all

 Steven Cameron, Pensions Director at Aegon, comments: “The latest report from the Bank of England’s Monetary Policy Committee predicts CPI inflation could rise from 9.4% in June to 13% in 2022 Q4, remaining ‘at very elevated levels’ through 2023, before falling to 2%, its target, in 2 years’ time. Under the triple lock, state pensioners receive an increase each April based on the highest of inflation in the year to the previous September, earnings growth to the previous July or 2.5%. So the first big question is just how high will inflation be for the year to September? A 13% figure would see the full new state pension increase from £185.15 to £209.20 per week next April.

 “But the longer term question is whether in these unprecedented times, with inflation on a rollercoaster ride, does it make sense to base state pension increases on a year by year calculation. Using fixed dates, well ahead of the actual April increases, adds further to unpredictability and can lead to inequalities between those of working age whose earnings may be increasing at a very different rate from state pension increases, but whose NI contributions pay for state pensions. Moving to a formula which averages these indicators out over say a three year period would still protect pensioners, but would average out the peaks and troughs, and arguably create a fairer and more predictable outcome for all concerned.”
  

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