State Pensions are given to those who reach State Pension age, every four weeks. The amount you get depends on your National Insurance record, with contributions over your working life adding into your pension pot.
Each year the State Pension is increased by a percentage of one of three amounts. This is known as the Triple Lock System, and usually happens around April time, in line with the tax year.
However the Triple Lock System has been met with criticism in recent months, with the increase for April 2021 due to be huge for claimants.
Some campaigners have been urging the Government to get rid of the existing system at instead implement a fairer policy.
Despite this, The Times reported Prime Minister Boris Johnson has “put his foot down” and overruled Chancellor Rishi Sunak to keep the triple lock on increases in the State Pension.
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Part of Mr Johnson’s election manifesto pledged to retain the Triple Lock System for State Pension claimants.
And so far the Government has stuck to this promise and has not bowed to criticisms of the scheme.
The Triple Lock Scheme is the measure by which State Pensions rise every year.
In April each year State Pensions will either increase in line with wage growth, inflation or by 2.5 percent, whichever of the three is highest.
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Critics have been quick to point out the coronavirus pandemic and subsequent impact on the economy has created a huge disparity.
This means State Pension could rise three times as fast as prices or earnings, due to the huge decline in wages brought on by lockdown.
Economists are expecting then to see an expected spike in salaries in 2021.
The Bank of England predicts a two percent fall in wages in 2020 as a result of a stagnant economy following lockdown.
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This will then by followed by a four percent increase in 2021 as workers return to the workplace and the economy stabilises.
Should the Bank of England’s predictions ring true, this would see a 2.5 percent rise in the State Pension next year, then a five percent increase in 2022.
As a result, State Pensions would see a two year spike of a staggering 7.6 percent.
In turn, State Pensions would cost the Government an extra £3 billion more in 2022, and an increase of £2.1 billion in 2021.
State Pension changes: Work and Pensions Secretary Therese Coffey said the Government is looking at making changes to State Pensions
Steven Cameron, pensions director at Aegon said: “This obscure technical detail has escaped the notice of pensions experts and had the government used this to justify no state pension increase next April, would have come as a shock to millions of state pensioners.
“While removing the legal barrier to granting an increase is welcome news, it may not be the final twist in the tail of the triple lock saga as it’s still to be seen if the government will stick rigidly to this formula year on year.
“Doing so could see pensioners receive a 2.5 percent uplift next April and a much higher increase the following April if earnings growth rebounds after falling.
“This could come as many working age people might be struggling to regain pre Covid-19 earnings levels.”
Work and Pensions Secretary Therese Coffey told MPs the Government is looking at making changes to pension rules.
However, Ms Coffey has not given any indication the triple lock system will be scrapped.
She told MPs in the House of Commons: “This Government is absolutely committed to fulfilling its manifesto commitments.
“This is not about abandoning the triple lock in any way. But… there are some consequences.
State Pension changes: State Pensions explained
“If average earnings fall during this year that we need to rectify in order to make sure that aspects of the law that is already in place cannot be set aside.”
Already State Pensioners have seen a boost, as in April 2020, the payment increased by 3.9 percent.
This was the biggest rise since 2012 and meant the new State Pension increased from £168.60 to £175.20 a week.
So how much would this increase by? Well should the Bank of England’s foresight comes true the 7.6 percent spike would see the State Pension climb to more than £188 by 2022.
This means claimants would receive an extra £54 a month.
The Office for Budgetary Responsibility (OBR) has forecast an even bigger rise. The OBR said the flat-rate State Pension would increase by more than 21 percent in the next two years alone.
This would happen first by 2.5 percent in 2021 and then by a staggering 18.3 percent in 2022.
These figures are in line with the OBR’s predictions on how much the average wage will increase as the economy begins to get back on track.
Staggeringly if the OBR’s prediction is true, State Pension payments would spike from £175.20 a week to £212.45 a week, a difference of almost £150.