Pensioners and other benefits recipients will begin receiving the pay rise that isn’t this week as forecasters warn the 3.1 per cent rise will be dwarfed by a 9 per cent peak in the rate of inflation later this year.
The state pension has increased in line with last September’s rate of inflation as measured by the Consumer Prices Index (CPI).
It means the basic state pension paid to those who reached state retirement age before April 2016 has gone up by £4.25 to £141.85, while those who retired after 2016 will receive an extra £5.55 a week, taking their benefit to £185.15 a week.
All other benefits have also increased by 3.1 per cent, including working-age benefits, those relating to disability, caring, statutory payments and additional pensioner benefits.
At the same time, the average wage, excluding bonuses, rose by 4 per cent in the three months to February compared with the previous year, according to the Office for National Statistics (ONS).
But all represent a significant drop in real terms. The Office for National Statistics today confirmed that the CPI measure of inflation reached 7 per cent in March, with the invasion of Ukraine in particular continuing to directly and indirectly influence the price of a huge range of commodities.
Had the full “triple-lock” on state pension increases remained in place, which pegs the benefit increase to the greater of inflation, wage growth or 2.5 per cent, pensioners would now be receiving an old-age benefit worth 8.3 per cent more than last year.
“Traditionally, the government uses the inflation rate from the prior September to uprate benefits. Unfortunately, this was before prices in the UK spiked,” explained Tom Selby, head of retirement policy at AJ Bell.
“This comes after the Government chose to axe the earnings element of the triple-lock guarantee, with the £5bn annual price tag of keeping this manifesto promise deemed too rich by Chancellor Rishi Sunak.
“To put it another way, the move has cost them £9.35 per week in retirement income – or £486.20 over the course of the year.”
Rising prices and the dwindling real-terms value of their savings and state benefits mean two-thirds of those reaching retirement age this year plan to continue working – a huge jump from the third of 2020 retirees who made the same decision.
Data from Investment company Abrdn suggests a quarter of the “class of 2022” will go part-time, one in six will continue working for their own business and one in ten plan to start a whole new enterprise.
But whatever their plans for work, the main driver for such “flexi-retirement” is the need for income.
Only a quarter (25 per cent) of this year’s retirees feel particularly confident that they have saved enough to fund their retirement compared to nearly a third (30 per cent) of the Class of 2021, and a further quarter say they don’t know how to mitigate the impact of rising inflation on their retirement income.
Despite the increasing strain on finances, more than a third of the newly retired provide financial support to their family, according to a separate study.
On average, they give £307 a month to help family – nearly £3,700 a year – with 10 per cent giving over £500 a month to family members or more than £6,000 a year.
With the average income in retirement £21,663, this means those planning to retire could end up spending around a sixth of it helping families, which would be a significant drain on their retirement income – especially as inflation and the high cost of utilities starts to bite, data from advise firm Key Later Life Finance suggests.
The reasons for such regular financial support include just under one in 10 whose family lives with them rent-free, while others contribute to childcare costs, cover the cost of other essential outgoings or hand over cash on a regular basis to help ends meet when it comes to other everyday living costs.
Retirees also provide significant support to cover major costs, from new cars and stumping up cash for university fees and other bills to financing property deposits.
The research also shows that women – who typically have a lower income – provide a greater amount of family financial support each month than men, handing out £318 compared with £300. They are also almost twice as likely as men to provide rent-free accommodation to family members.
