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State pension warning: Britons risk being 'hammered' by inflation amid triple lock scrap

Daily Express logo Daily Express 15/01/2022 Mark Oldacres

The decision to suspend the state pension triple lock for the 2022/23 tax year may have big implications for pensioners, reducing their income at a time when inflation is running riot. Retirees have been warned they risk being "hammered" by inflation this year.

A temporary suspension to the triple lock policy was announced back in September 2021, but with the new tax year now just a few months away, the potential repercussions are starting to become clearer.

The triple lock policy ensures the state pension increases every year by either the rate of inflation, the rate of average earnings growth, or 2.5 percent.

It was introduced in 2010 to help give pensioners peace of mind that their income would rise to keep up with the cost of living.

Britain's retirees had been set for a mega boost to their state pension income this year of more than eight percent under the traditional triple lock, which would have been by far the largest increase to the state pension in the last decade.

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state pension triple lock 2022 inflation rate uk © GETTY state pension triple lock 2022 inflation rate uk

However, the Government believed the bloated average earnings growth figures which would have dictated such an increase were being artificially pumped up due to the number of people returning to work after being on furlough.

The decision was therefore taken to remove the earnings link from the triple lock for the upcoming tax year, and instead increase the state pension by the second-highest figure, which was 3.1 percent in line with inflation.

However, since this 3.1 percent boost was locked in, inflation has continued to rise, up to a 10-year high of 5.1 percent in the latest figures.

This has prompted serious concern over the financial predicament pensioners could be placed in if the cost of living outpaces their state pension increase.

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Steve Wilkie, Executive Chairman of Responsible Life, is a later life money expert and offered his thoughts on the potential issues pensioners could face this year. He believes no one will be safe from the impact of inflation.

He said: "Retirees with both fixed and variable pension income can get hammered by inflation and they need to be on high alert in 2022.

"On the one hand, those who have bought an annuity giving them a guaranteed income are confronted by rising living costs.

"Their spending power will decline because their retirement income remains the same.

what is state pension © Express what is state pension

"Some people will have inflation protection through annuities that are linked to CPI, but they are very much in the minority."

Mr Wilkie said people who have taken the opposite approach to their retirement income could also be hit hard.

He continued: "At the other extreme you have those pensioners who have not taken an annuity and who rely on a mixture of lump sum drawdown and investment returns.

"This arrangement has become very popular since pension freedoms were introduced in 2015 but taking lump sums out of a pension pot can have a dramatic effect on the income that pot produces, especially if stock markets are as bumpy as they have been over the past two years.

state pension triple lock 2022 inflation rate uk © GETTY state pension triple lock 2022 inflation rate uk

"Using drawdown too much creates a perfect storm for retirees in an inflationary environment because they are reducing the size of their pension pot and hurting its ability to create an income just as prices are rising."

During these unprecedented times, Mr Wilkie believes there is a risk that many pensioners will not know how to react, and could find themselves in serious financial peril as a result.

He concluded: "As inflation upends the rules of the game, even minor changes to the way retirees use their pension can have a disproportionate effect on their standard of living.

"A key danger lies in the fact that those retirees enjoying pension freedoms today haven't experienced a substantial increase in the cost of living for decades, and could be blind to the risks.

"If inflation proves to be persistent, retirees face a much higher chance of running out of money, and this problem is exacerbated by the fact that inflation affects essentials more than discretionary spending."

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