The Consumer Price Index fell back slightly from August record breaking level of 3.2% to 3.1% and will be the rate of increase for state pensions as from April 2022.
The state pension increases each year by the Triple Lock which was introduced the Conservative/Liberal Democrat coalition government in 2010. It was a guarantee that the state pension would keep pace with real cost of living by increasing every year. The term triple lock was derived from the three measures used to decide on the level of uplift being the greatest of:
- Average Earnings
- Prices – using the Consumer Price Index (CPI)
However, on 7th September of this year, Therese Coffey, Work and Pensions Secretary announced that the triple lock in its current form was to be suspended with the increase being determined by just the two factors, the greater of CPI or 2.5%, removing the average earnings measure.
The reason for this suspension, was the impact that the Covid pandemic had on average earnings. Peoples’ earnings reduced when they were placed on furlough, then as furlough was phased out reducing the reliance on the furlough scheme and people returned to full pay the measure of average earnings increased rapidly with an estimate of 8% from May to July 2021.
According to the wealth management firm Quilter, had the suspension not been made an 8% increase as opposed to a 2.5% increase would have cost the government an additional £5 billion when already faced with the public sector net debt of £2,202.9 billion at the end of August 2021.
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