State pension payments could increase by 8%, leaving Rishi Sunak with “two options.”
With coronavirus distortions contributing to substantial rises in average earnings, state pension payments could skyrocket starting next year. Predicted rises, according to new research from the Office for Budget Responsibility (OBR), could boost payments by as much as 8%, adding an extra £3 billion to government spending.
Under current triple lock laws, state pension payouts are guaranteed to increase every year in accordance with the highest of inflation (as assessed by the CPI), average earnings, or 2.5 percent. Many have anticipated that the impact of the coronavirus on the economy would distort wage numbers across the UK, resulting in substantial payment increases for pensioners next year.
The Office for Budget Responsibility (OBR) released its latest fiscal risks assessment for July 2021 yesterday, and it emphasized how high state pension payments could increase.
“Unusual pandemic-related swings in wages growth have seen it rise to 5.6 percent in the three months to April 2021, from whence it is almost certain to rise further in the three months before the uprating is calculated,” the paper said of the state pension triple lock.
“The triple lock increases spending by £0.9 billion for every 1% increase in inflation, and our March prediction projected 4.6 percent inflation next year.
“So, if earnings growth in the three months leading up to July, which determines triple lock uprating for next April, was 8%, as some predict, that would add about £3 billion to spending each year.”
While it is unclear how earnings would rise, if the 8% threshold is reached, full state pension benefits might jump from £179.60 per week to about £193.96 per week.
Aegon’s Pensions Director, Steven Camerson, remarked on the findings, noting that the state’s costs could be considerably greater than expected.
“The latest study from the Office for Budget Responsibilities on the economic and fiscal implications of the coronavirus outbreak confirms what the pensions industry has been predicting,” Mr Cameron said.
“If the higher trend in national average wages numbers continues due to distortions from the furlough plan and the loss of low-wage positions, state retirees will be in line for a big boost in April 2022 if the government keeps to the technical specifics of its triple lock.”Brinkwire Summary News”.