According to Chancellor Jeremy Hunt’s announcement, UK state pensions will increase by 10.1% in April 2023, in line with September’s Consumer Price Index (CPI) measure of inflation.
Accordingly, 12.4 million recipients of the State Pension should see an immediate boost from next spring. It provides much-needed comfort to those who had been worrying about their financial stability in recent months.
What is a state pension?
State pensions are regular payments from the Government that are based on your National Insurance contributions. The amount received depends on how long you’ve paid in and when.
If you don’t have 35 years of National Insurance contributions, voluntary contributions and credits can help fill in any gaps in your record and count towards earning your State Pension.
If you worked and earned over certain levels before April 2016, then you are eligible to pay into an Additional State Pension (S2P). This will give you additional money on top of the basic State Pension.
Alternatively, you could invest in a lump sum to increase your state pension. This could be an advantageous option if you have an extended life expectancy or plan on retiring early.
As a self-employed individual, you may qualify for an enhanced pension rate due to special rules regarding entry into insurance for self-employed people. You have two choices: on 6 April 1988 or when you first paid employee PRSI – whichever comes later.
How much will the state pension increase?
The UK government is raising state pensions annually in response to rising cost-of-living pressures. This increase is calculated using the Consumer Price Index (CPI) rate of inflation.
The triple lock is a measure that links state pension increases to either an average wage increase or 2.5 percent inflation. It was temporarily suspended during the COVID-19 pandemic but reinstated by Chancellor Jeremy Hunt’s autumn statement.
This triple lock is essential, as it ensures state pensions are increased in line with inflation. This is an essential step to help elderly Britons afford higher living costs.
State pensions will not provide much financial security when you retire, so it’s essential to stay aware of your own finances and how you are saving for retirement. This should be done as part of a comprehensive retirement plan that includes well-managed savings and investment portfolios.
It is essential to remember that the value of your investments may decrease or increase, so it pays off to be prepared. Furthermore, consider taking out insurance cover in retirement to safeguard yourself against any unexpected costs during retirement.
Why has the government backtracked the ’triple lock’ suspension?
The government has reversed course on their promise to suspend the ‘triple lock’ for state pension increases, leaving thousands at risk. This was an integral component of previous budget commitments that guaranteed pensioners a meaningful increase each year.
The triple lock promised that the state pension would increase annually according to price inflation, earnings growth or 2.5%. But last year there were concerns that this might lead to an artificially high increase in benefits due to the return of many workers from furlough following the coronavirus crisis.
However, the triple lock guarantee was suspended for one year and in its place the state pension will be raised in accordance with September’s CPI inflation figure.
Will this 10% increase make a difference?
In April 2023, the state pension increase is set to rise by around 10% to keep pace with inflation. But will this make a difference for those who rely on it for essential living costs?
Those relying on their state pension to cover living costs are already feeling the pinch from high energy prices, food prices and fuel costs. It remains uncertain if this 10% increase will be enough to make things more manageable; inflation is forecasted to reach around 10% next year.
Inflation can be a real issue for pensioners, since it reduces their benefits over time. A 1% annual rise in inflation could reduce an initial pension of PS25,000 to just $20,488 after two decades.