State pension warning: Ex-ministers condemn ‘shameful’ hike after inflation surge

Pensions: Money Box caller talks impact of age differences

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Baroness Altmann told the decision was “shameful” and would “plunge more elderly people into poverty”. She added: “They have ploughed ahead with the clearly insufficient September CPI number which was artificially lowered by the pandemic policies.” Speaking to another former pensions minister Sir Steve Webb, now a partner at LCP, said today’s inflation figures showed the 3.1 percent increase in pensions was “already not enough”. This morning the Office for National Statistics (ONS) found inflation had reached 4.2 percent, over double the Bank of England’s target. 

The Bank of England expects it to reach as high as five percent next year.

“It’s not like no one knew this was coming,” said Sir Steve.

“The least they should do is link pensions to next year’s figures,” he added, pointing out we have a forecast from the Bank of England of five percent next year so it could be set to that.

“This is an official forecast,” he added, “not some number that’s been made up.”

Head of Pensions and Savings at Interactive Investor Becky O’Connor said: “Economists had predicted that September’s inflation rate would look low compared to the inflation on the cards this winter and into 2022.

“It now looks way behind the rising trend.

“Those dependent on the state pension will therefore find the essentials they need for basic living harder to afford.”

With costs such as energy bills expected to soar next year Sir Steve warned pensioners “will have a squeeze” as inflation wipes out any increases to their income suggesting people will be forced to turn the heating down or heat fewer rooms.

Previously pension rises have been governed by the triple lock policy which saw increases by whichever was highest out of inflation, earnings growth or 2.5 percent.

However the Government has reduced this to a double lock based on just inflation or 2.5 percent due to a huge rise in earnings since the pandemic.

Using average earnings could have seen pensions rise by as much as eight percent next year.

Baroness Altmann has been pushing for an amendment to the double lock which she said would “correct for the anomalies of the Covid impacts on the earnings and CPI statistics”.

However the amendment was overturned by the House of Commons this week by 300 votes to 299.

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Growing inflation pay also proves a threat to working-age people currently paying into pensions.

Andrew Tully, technical director at Canada Life suggested people could start to “deprioritise their pension savings” due to wages being stretched further.

“If inflation continues to grow unchecked we could start to see the undoing of some of the great strides forward made by auto-enrolment,” he added.

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