Pensions and pension savers have come under pressure from several factors over recent years, with those saving for retirement now having to consider a range of challenges.
According to Ian Mitchell, managing director of accountancy firm Mitchell Meredith, the cost-of-living crisis may be one of the more prevalent of these challenges that pension savers and pensioners must try to navigate over 2022.
As Mitchell himself puts it: “Those already claiming the state pension are expected to find meeting the cost of living a challenge this year. This is because the government dropped its triple lock promise for pensions, even though inflation continues to rise.”
Under the government’s triple lock policy, the state pension increased every year according to whichever was the highest out of inflation, earnings growth, or 2.5 per cent. Earnings growth, which was running at eight per cent was then dropped to create a double lock. Therefore, the state pension will now increase by 3.1 per cent in April 2022, which was the inflation figure back in September. By the spring, however, inflation is expected to stand at roughly six per cent.
Mitchell continued: “Inflation is now running ahead of 3.1 per cent, exacerbated by higher energy and food bills which pushed the cost of living up by 5.1 per cent in the 12 months to November 2021. This was the fastest rate in a decade that cost of living arose. Additionally, the Bank of England has forecast the rate of inflation to hit six per cent in early 2022.
“In addition to this, people now must wait longer to access their state pension. The retirement age for the benefit recently changed from 65 to 66, with an increase to 67 due in 2028.”
While the Bank of England expected inflation to hit six per cent by the spring, some economists suggest that an April peak of seven per cent may now be more likely.
Surging inflation is a major issue that prime minister Boris Johnson and his government are having to contend with, as opposition MPs and charitable organisations urge him and his ministers to offset the rising costs of energy bills.
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