RETIREES look set to see their state pension boosted by 2.5% as coronavirus forces the triple lock guarantee into effect.
The increase – which would see the “new” state pension boosted by £230 a year – is likely to come into force if September inflation figures remain low.
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The triple lock is a legal guarantee that ensures the state pension will rise by at least 2.5% each year.
Its calculation is based on whichever is higher out of consumer prices index (CPI) inflation, earnings growth or 2.5%.
The government usually uses inflation in September, and average earnings in the three months to July, to determine how much pensions go up by in April the following year.
Experts are predicting that CPI in September will remain close to 0% due to coronavirus, with figures set to be released this Wednesday, October 21.
What are the different types of pension?
WE round-up the main types of pension and how they differ:
- Personal pension or self-invested personal pension (Sipp) – This is probably the most flexible type of pension as you can choose your own provider and how much you invest.
- Workplace pension – The Government has made it so it’s compulsory for employers to automatically enrol you in your workplace pension, unless you choose to opt out. These so-called defined contribution (DC) pensions are usually chosen by your employer and you won’t be able to change it. Minimum contributions rose to 8% in April 2019, with employees now paying in 5% and employers contributing 3%. This is up from the 5% of contributions workers and companies were required to pay in previously, where employees contributed 3% and employers 2%.
- Final salary pension – This is a also a workplace pension but here, what you get in retirement is decided based on your salary, and you’ll be paid a set amount each year on retiring. It’s often referred to as a gold-plated pension or a defined benefit (DB) pension. But they’re not typically offered by employers anymore.
- New state pension – This is what the state pays to those who reach state pension age after April 6 2016. The maximum payout is £175.20 a week and you’ll need 35 years of national insurance contributions to get this. You also need at least ten years’ worth of national insurance contributions to qualify.
- Basic state pension – If you reached the state pension age on or before April 2016, you’ll get the basic state pension. The full amount is £134.25 per week and you’ll need 30 years of national insurance contributions to get this. If you have the basic state pension you may also get a top-up from what’s known as the additional or second state pension. Those who have built up national insurance contributions under both the basic and new state pensions will get a combination of both schemes.
The inflation rate plunged to 0.2% in August – far off the government target of 2% inflation.
Average earnings, meanwhile, were down 1% for the three months to July – meaning the triple lock guarantee is likely to come into force.
Tom Selby, senior analyst at AJ Bell, said: “With Covid-19 hammering wages and pushing inflation to almost 0%, the value of the state pension triple-lock has never been clearer.
“If it were not for the policy, pensioners would likely see their state pension frozen next year.
“As it is, retirees are set to benefit from a 2.5% state pension boost in 2021/22, adding £3.40 a week to the value of the ‘old’ basic-rate state pension and £4.40 a week to the ‘new’ state pension.”
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This would be the fourth time the 2.5% triple lock has kicked in since the policy was introduced in 2011.
The full new state pension is £175.20 per week, while the previous full basic state pension was £134.25 per week.
If the triple lock comes into force, the new state pension will rise by £4.40 a week to £179.60.
The old basic state pension will increase by £3.40 a week to £137.65.
The expected rise comes as the pension age for men and women has increased to 66 on October 6, up from 65.
The change applies to anyone born after October 5, 1954, and it means they will now have to wait a year longer before they can access their state-paid retirement fund.
For some women, this will be six years after they were originally told they would be able to claim their retirement fund aged 60.
From 2026 to 2028, the state pension age is going to rise again to 67 and it could go up to 68 between 2037 and 2039.
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We’ve rounded up everything you need to know about how you can claim your state pension.
From next year, elderly people will have to apply for pension credit if they want a free TV licence.
Pension savers could also be missing out on thousands of pounds if they don’t tell their pension provider when they’re considering retiring.
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