Pensioners could face a financial ‘rollercoaster’ in the next few years as the state pension is set to fluctuate, according to forecasts from the Office for Budget Responsibility.
Based on the latest forecasts from the OBR, and calculations by LCP partner Steve Webb, this April state pensions will rise by just 3.1 per cent - less than half the rate of inflation which is at 6.2 per cent.
Currently, the earnings element of the triple lock has been suspended, but in 2023 this will be reinstated and the state pension will be increased by the highest of earnings growth, price inflation or 2.5 per cent a year.
Therefore by April 2023, the pension rise is forecast to be 7.5 per cent, which Webb dubbed “the biggest ever cash rise in the state pension”. By April 2024 the rate of the new state pension will go through the £200 per week barrier.
Webb argued that the measures announced in the Spring Statement yesterday (March 23) offered little help for most pensioners.
He said the coming 12 months are set to be one of the toughest on record for many pensioners and the main help they will receive from the chancellor is the already-announced £150 off council tax bills, but only for those in properties in bands A-D.
They will also get £200 off energy bills in the Autumn, but this will have to be repaid over the coming five years.
Yesterday chancellor Rishi Sunak announced measures to lift the national insurance threshold by £3,000, cut the basic rate of income tax from 20 pence to 19 pence in the pound by 2024 and cut fuel duty by 5p per litre for 12 months.
Webb said the NI changes offered nothing to retired pensions and the fuel duty will mainly benefit those who are in work and who drive regularly.
He said: “Pensioners are set to face a financial rollercoaster in the coming years with a tough squeeze this year followed by a catch-up next year.
“The spring statement will have been a big disappointment, and some pensioners may find themselves having to apply to their council for hardship funds simply to make ends meet.”
Webb added: “But next year should see the biggest ever cash rise in the value of the state pension, as pension rates catch up. The problem is that ‘jam tomorrow’ will not pay bills today”.
However, he also explained that the one additional source of help which may be relevant to pensioners who are struggling the most is the extra £500mn for local authority ‘hardship funds’.
Pensioners in the direst need will be able to approach their local authority for support, almost certainly on a means-tested basis, “with each council making up its own scheme”.
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