Yahoo Finance Benefits and state pension increase outpaced by rising prices
A planned 3.1% rise in UK state pension and benefits has taken effect on Monday, but charities have warned that the increase fails to keep up with an 8% hike in prices of essentials and energy bills.
The climb will see the basic state pension, paid to those who reached state pension age before 6 April 2016, increase by £4.25 ($5.55) to £141.85 a week, while the flat-rate state pension, for those who reach state pension age from 6 April 2016, will rise by £5.55 from £179.60 to £185.15.
Under the changes, the universal credit allowance for a single 25-year-old person will rise from £324.84 to £334.91 per month, totalling £4,019 a year. Child benefit goes up 68p per week for the eldest child.
Ministers announced in November last year that the state pension, universal credit and a host of other benefits would jump by 3.1%.
These rates are calculated according to the consumer price index (CPI) for the year up to September 2021.
However, since inflation has sky rocketed to a 30-year high since September, hitting 6.2% in February and forecast to peak above 8% this month, due to a £693 a year surge in energy bills.
Tom Selby, head of retirement policy at AJ Bell, said: "The reason is that traditionally the government uses the inflation rate from the prior September used to uprate benefits. Unfortunately, this was before prices in the UK spiked.
"Had the triple-lock been retained and an 8.3% earnings-linked increase applied, someone in receipt of the full flat-rate state pension would be seeing their weekly income bumped up to around £194.50 today.
"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."
Read more: UK pay growth still below pre-COVID levels despite rise
The growth in inflation will mean a huge cut for already struggling British households, with a £12bn fall in the real value of benefits in 2022-2023, according to the Office for Budget Responsibility (OBR).
This means that UK pension and benefits claimants will see the value of their payments fall to the lowest point in 50 years as Britons grapple with the worst cost of living crisis since 1972.
The OBR said it will take up to 18 months for benefit and pension payments to catch up with inflation, and the triple lock measure that would have led to a state pension rise of 8% has been suspended.
Jonathan Ashworth, the shadow work and pensions secretary, said chancellor Rishi Sunak had imposed the steepest real-terms cut to the state pension in 50 years and a second deep cut to universal credit in six months.
"These severe real term cuts are a direct consequence of his point-blank refusal to take into account current price rises in setting rates," Ashworth said.
"His decision will help push an extra 1.3 million people including 500,000 children into absolute poverty. It’s now clearer than ever that the working people, disabled people and pensioners are worse off under the Tories."
Usually, under triple lock, pensions increase by inflation, the increase in earnings between May and July or 2.5% — whichever is highest.
Dan Paskins, director of UK Impact at Save the Children UK, said: "For many, energy price hikes alone will swallow up any extra income. In terms of meeting day to day costs, it won’t even touch the sides."
