State pension payments ‘may not cover’ bills

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Last year, the Government confirmed it would be reintroducing the triple lock pledge for state pension payments. This comes as a welcome relief for older households who have struggled financially over the last 12 months with its suspension. Despite this, experts are sounding the alarm that the state pension “may not cover” peoples’ bills which have skyrocketed due to inflation.

Rio Stedford, a financial planning expert at Quilter, outlined the plight affecting pensioners in the UK amid the rise in the cost of living.

She explained: “While many pensioners don’t have much debt to speak of as they typically own their house outright, high inflation means that their regular pension payments may not cover their living expenses as they did before.

“Although the state pension has increased in line with inflation, some pension plans may not keep pace with inflation, reducing the value of benefits over time. This can result in a lower standard of living and increased financial stress.”

Over the past year, inflation has skyrocketed which has resulted in people becoming more acutely aware of their finances.

According to the finance expert, the recent hikes to interest rates are unable to directly compete with inflation at its current rate.

Ms Stedford added: “If someone holds a significant amount of cash in their pension, then the interest rate hikes will help produce higher levels of growth, but the rates will not beat inflation.

“For workers still contributing to their pension, high interest rates can also make it more expensive for businesses to borrow money.

“This can result in less economic growth, lower profits, and reduced contributions to pension plans.”

What is the state pension triple lock?

Introduced in 2010, this is a promise made by the Government regarding the increase of state pensions every year.

Payments go up by whichever is higher out of the Consumer Price Index (CPI) rate of inflation for September, average earnings figures or 2.5 percent.

Due to wages being artificially inflated during the pandemic, the link to average earnings was temporarily scrapped which means state pensioners lost out on a bigger payday.

However, Chancellor Jeremy Hunt announced its return during his Autumn Statement to help those struggling to get by.

READ MORE: Recession fears continue despite UK economy growing

How much will the state pension rise by?

State pension payments are due to increase by 10.1 percent, in line with September 2022’s CPI rate of inflation.

Currently, the full new state pension is £185.15 per week for claimants and is accessible to people once they turn 66, while the full basic state pension is £141.85 per week.

The basic state pension is awarded to individuals who reached retirement age before April 6, 2016.

With the triple lock coming back, full new state pension payments will be £203.85 a week, while basic state pension payments will rise to £156.20 a week.

What is the current rate of inflation?

For December 2022, CPI in the UK came to 10.5 percent which is a slight drop from the month before.

Despite this, the current rate remains extremely high and is more than the rate being used as the metric for the state pension triple lock.

Older households will be anxiously waiting to see if the inflation rate drops below 10.1 percent in the coming months.

The next inflation announcement will be on February 15, 2023.

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