The Department for Work and Pensions has published its latest ‘Abstract of benefit rates’, including information on state pension upratings. The data appears to show the state pension finding it more difficult to stay ahead of inflation.
In its analysis, the Office for National Statistics (ONS) states that: “Since the introduction of the triple lock guarantee in April 2011, the value of the basic state pension has either exceeded or kept pace with CPI inflation.”
There was a slight dip in the real value of the basic state pension between April 2020 and April 2021, according to the figures.
The triple lock policy ensures the state pension rises each year by an absolute minimum of 2.5 percent.
If the rate of inflation or the rate of average earnings growth is higher than 2.5 percent, the higher figure is used instead.
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In April 2011, the rate of the basic state pension was £102.15, but its real terms value was around 28 percent higher at £131.22.
Five years on in April 2016, the gap had shortened, with the rate of the basic state pension at £119.30 and real terms value at £137.42, a roughly 15 percent difference.
Becky O’Connor, Head of Pensions and Savings at interactive investor, said the ability to keep up with inflation is not a one size fits all situation.
She said: “Although state pension upratings have largely kept pace with CPI inflation, this isn’t enough to feel satisfied that all pensioners are able to keep up with the rising cost of living.
“Inflation is a subjective experience and can be different for different households.
“We know, for example, that pensioners tend to spend a higher proportion of their overall income on energy and food, so disproportionate price increases in these categories affect them more.”
The state pension will rise by 3.1 percent from April 2022, taking the basic state pension up to £141.85 per week.
However, inflation is currently well outpacing this level of increase, clocking in at 5.4 percent for the 12 months to December 2021.
This means there is a risk that pensioners will not be able to keep up with the cost of living.
Ms O’Connor said: “It’s clear that the coming 3.1 percent rise in the state pension this April will not be enough to support the basic living cost rises of older households who depend on this benefit, if inflation continues to be significantly higher for the rest of the year.
“In these times of high and rising inflation, considering the impact of rising prices for different types of households in uprating decisions, might lead to a more representative result.
“The choice of inflation measures is ultimately political, which the ONS itself points out in a briefing note put out in 2013 on ‘Implications of the differences between the Consumer Price Index and the Retail Price Index’.”
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