UK expected to have huge pensions boost when unemployment at a high

LaToya Harding
·Contributor
·3 min read
State pension is expected to go up by around £7 a week in the year after next, according to the Office for Budget Responsibility the. Photo: John Sibley/Reuters
State pension is expected to go up by around £7 a week in the year after next, according to the Office for Budget Responsibility the. Photo: John Sibley/Reuters

UK pensioners will receive a 4.1% rise in their state pension in April 2022, according to official data, while unemployment is still expected to be at a high.

According to the Office for Budget Responsibility (OBR) the state pension is expected to go up by around £7 a week in the year after next. This forecast is based on estimates of wage growth, including the expectation of a rebound in wages for those still in work, many of whom had been on the government’s furlough scheme.

However, the rise will come at a time when unemployment is predicted to be at high levels due to the devastation caused by the coronavirus pandemic.

From April 2021, the state pension will increase by 2.5% but the following year Rishi Sunak will face a dilemma between keeping to the Conservative “triple lock” manifesto and tackling intergenerational unfairness.

The pensions triple lock, which was introduced a decade ago, links annual increases in state pensions to real earnings. It is a legal guarantee that each year pensions will rise either by inflation, earnings growth in the three months to July, or 2.5% — whichever is highest.

The Office for National Statistics (ONS) revealed that September’s annual inflation figure stands at 0.5%, up from 0.2% in August.

With earnings falling, this means that the state pension will rise by 2.5% from April 2021 (until at least 2024) - the fourth time this safety net has been used since the policy was established.

Pensioners on the new state pension will see a rise of £4.40 a week next year to £179.60 while those on the old state pension system will see an increase of £3.40 a week to £137.65.

The UK state pension is still one of the less generous in Europe.

READ MORE: UK pensions triple lock 'could cause chaos' in coming years

At one point, the OBR had predicted that the state pension percentage rise could have been as much as double digits.

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But IFS director Paul Johnson told the BBC, that "it remains the case that the state pension is set to rise by 6% in real terms between now and 2025, raising its cost by £6bn".

“Again, pensions will rise much faster than earnings, let alone working age benefits," he said.

The triple lock mechanism has already faced a lot of pressure this year, with calls for the system to be scrapped amid a collapse in earnings growth due to COVID-19.

The Organisation for Economic Co-operation and Development (OECD) urged the British government to abandon its triple lock or face growing pressure on UK finances.

“Population ageing is putting pressure on public finances,” the OECD wrote in its United Kingdom Economic Survey 2020. “Indexing state pensions to average earnings rather than using the ‘triple lock’ (the maximum of earning growth, inflation and 2.5%) would improve sustainability.”

In June, the Financial Times reported that Chancellow Rishi Sunak was mulling plans to scrap the system on affordability grounds. However, a Downing Street source told Yahoo Finance UK at the time there were “no plans” to abandon the triple lock.

Watch: What is universal basic income?