Bring state pension in line with new inflation figures, ministers told

·4-min read
Pensions support - format1/Alamy Stock Photo
Pensions support - format1/Alamy Stock Photo

Pension increases in April should be linked to new inflation forecasts in a one-off effort to tackle the cost of living crisis, campaigners have said.

Campaigners and former pensions ministers called on the Government to step in urgently to protect elderly people, who are already facing a difficult winter of rising energy bills, after City economists revised up their inflation forecasts for this year.

They said that the annual state pension, which will increase by just 3.1 per cent in April, was based on out-of-date figures and should be revised to account for the fact that inflation is likely to peak at more than double that.

The 3.1 per cent increase is pegged to the inflation rate in September, but price rises have escalated considerably since then on the back of soaring energy prices.

Capital Economics, a research consultancy, said that the index would come in closer to seven per cent in April, which is higher than the six per cent peak forecast by the Bank of England in November. By failing to keep up with inflation, pensioners’ incomes will fall in real terms.

Sir Steve Webb, the pensions minister under David Cameron, said: “This is a one-off situation that justifies using forecasts because we knew that this year’s figures would be volatile and erratic.

“It’s no good saying to a pensioner who is sitting at home with the heating on that they will get an increase next year… and it’s not just the poorest pensioners that this affects.”

Baroness Altmann of Tottenham and Sir Steve Webb, both pension ministers under David Cameron, urged the Government to improve pensions for the elderly - Jonathan Brady/PA Wire/Rii Schroer for The Telegraph
Baroness Altmann of Tottenham and Sir Steve Webb, both pension ministers under David Cameron, urged the Government to improve pensions for the elderly - Jonathan Brady/PA Wire/Rii Schroer for The Telegraph

Analysis by the Institute of Fiscal Studies showed that pensioners would gain £364 a year were the change implemented. Pensioners’ incomes will rise from £179.60 per week to £185.15 in April, but a seven per cent increase would take them to £192.16.

The Government has temporarily abandoned the triple lock, which guarantees that the state pension will rise each year by the greatest of 2.5 per cent, average annual earnings growth or inflation.

The effects of the lockdown on the labour market artificially inflated wage growth to 8.3 per cent in the three months to July, so the Government decided to suspend the earnings element and selected the inflation measure instead.

Baroness Altmann of Tottenham, another former Cameron-era pensions minister, said: “We had a manifesto promise to protect pensioners who are now on the cusp of a cost of living crisis. It is so awful to think that we have so many pensioners now living in poverty. What are they meant to live on?”

She called on ministers to increase one-off payments to pensioners, including the warm homes discount for those on the lowing incomes, to prevent hardship and a rise in excess deaths over the winter.

Caroline Abrahams, the charity director at Age UK, said: “There's no doubt that the rapid rise in the cost of living is hitting many older people hard, with worse likely to come in the spring due to soaring energy costs, according to the experts. It is certainly open to the Government to change its mind about pausing the triple lock this year, to help pensioners to cope at this inflationary time, but there are many other options available to ministers too.”

She added: “What really matters is that they bring forward one or more really effective measures that protect older people on low and modest incomes from financial distress and all the anxiety that goes along with it, and do so quickly. Token gestures will not be enough. There’s a need to direct substantially more money to the poorest pensioners to enable them to keep their heads above water this winter.”

A Government spokesperson said: “We recognise people are facing pressures with the cost of living and we want to ensure pensioners receive all of the support they are entitled to. Our winter fuel payments are supporting over 11 million pensioners with their energy bills and we are continuing to encourage those eligible for Pension Credit, and the wide range of other benefits it can provide, to make a claim.”

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