Pensions rise while pay frozen

STATE pensions will be increased by 2.5 per cent next year, rising to £ 179.60 per week for those on the full new rate.

Pension experts said the announcement about the changes in the 2021/ 22 tax year sends out a “difficult message” at a time when many of the working population are facing pay freezes while their national insurance contributions fund state pensions.

Under the “triple lock” system, state pensions increase every year in line with inflation, earnings, or 2.5 per cent – whichever is highest.

Earlier this year, the Government moved to avoid a state pension freeze, with a Bill to remove a legal barrier – as under the rules the state pension could only be increased if there had been growth in average earnings in the relevant period of the preceding year.

Many working adults have suffered pay cuts, job losses and furloughing this year as a result of the coronavirus pandemic.

The changes were confirmed yesterday in a written statement made by Secretary of State for Work and Pensions Therese Coffey.

Avoid

It said the Social Security

( Up- rating of Benefits) Act 2020 enables Ms Coffey to increase state pensions “even though there has been no growth in earnings”.

Ian Browne, pensions expert at investment advisers Quilter, said: “The Government has confirmed that state pension incomes will rise next year by 2.5 per cent, maintaining the minimum increase promised under the triple lock.

“This will be welcome news for retirees and it means the Chancellor and Work and Pensions Secretary can, for now at least, avoid accusations of breaking manifesto pledges to the elderly.

“But it will be hard to ignore the fact that giving retirees an inflationbusting income rise, while simultaneously announcing a pay freeze on many public sector workers, is a difficult message.”

Steven Cameron, pensions director at financial services provider Aegon, said: “Earnings growth is likely to be distorted and highly volatile for the foreseeable future, further exacerbated by the public- sector pay freeze.

“A fall in earnings next year followed by a sharp recovery the next could see the triple lock formula in that year produce a huge increase to state pensions while workers might simply be returning to pre- Covid pay levels.”