New calculations from Quilter show that retirees will suffer the worst disparity in their state pension payments when compared to the inflation rate since the triple lock was brought in over ten years ago.
It was announced in November that the state pension was to increase by 3.1% next year, which was set using September’s Consumer Price Index (CPI). However, with inflation running at 5.5% in the 12 months to January that means that pensioners will currently see a real term loss of 2.4% in the amount of income they will receive from the government, and it could get worse as the Bank of England expects CPI inflation to peak around 7.25% in April.
Since the triple lock was introduced in 2010, there have only been 22 months in total when inflation was above the uprating of the state pension for the previous April and five of those months were in 2021.
The previous biggest disparity was 0.6% in November 2017 when inflation ran higher than the state pension uprating for 11 months but only on average creating a disparity of 0.4% over the period.
The increase in state pension in 2023 will be based on CPI in September 2022 which will take account of inflation at that point. Therefore in 2023, the state pension increase could be higher than inflation for that year.
How the disparity could widen as inflation soars
Jon Greer, head of retirement policy at Quilter says:
“We are in a fiscally unique time, with a cost-of-living crisis biting and inflation steadily increasing. This is causing financial hardship throughout society and unfortunately pensioners are far from immune from it and will see their state pension payments suffer a real term loss.
“For those retirees who rely solely on the state pension, this kind of reduction in the real value of their payments will hit them hard especially against a backdrop of rising food and energy prices.
“While this could prove to be a difficult year for many pensioners there should at least be light at the end of the tunnel next year when the next state pension increase is based on the inflation that we are experiencing.
“Age UK estimates around £2.2bn of pension credit and housing benefits goes unclaimed by older people therefore anyone struggling should see if they can claim some of the other social security payments on offer such as the winter fuel payment, cold weather payment, or the warm homes discount to make the rest of the winter that much easier.”