Inflation: State Retirement Pensions

(asked on 28th October 2021) - View Source

Question to the Department for Work and Pensions:

To ask Her Majesty's Government what assessment they have made of reports that inflation will reach 4 per cent this winter; and what assessment, if any, they made of such reports when deciding to increase the state pension by 3.1 per cent.


This question was answered on 10th November 2021

We have introduced the Social Security (Up-rating of Benefits) Bill into Parliament due to a statistical anomaly caused by the pandemic which has seen earnings growth surge to 8.3 per cent. This Bill temporarily amends the Social Security Administration Act 1992 and sets aside the earnings link for 2022/23. In its place, the Bill will require the Secretary of State to increase the relevant pensions and benefits by not less than the higher of inflation, which we now know is 3.1 per cent, or 2.5 per cent. The Bill covers the basic State Pension, the new State Pension, the Standard Minimum Guarantee in Pension Credit, and survivors’ benefits in Industrial Death Benefit.

When we introduced the Bill earnings indices were showing significant volatility and we needed to take clear and decisive action to address the exceptional growth in earnings, and to give clarity on what would happen in April of next year. That is why we placed a double lock on the face of the Bill.

Last year we saw earnings fall by one percentage point. In response, we legislated to set aside the earnings link, allowing the Secretary of State to award an up-rating of 2.5 per cent as this was higher than inflation. If we had not done this, State Pension would have been frozen. This legislation plus last years ensures the value of the State Pension is more than maintained relative to prices over the two years of the pandemic.

The Secretary of State is required to undertake an annual review of State benefits and pensions which needs to be completed by the end of November due to IT deadlines. There are also interdependencies with Her Majesty’s Revenue and Customs and Local Authorities which require the rates before Christmas. The new rates are then included in the Social Security Benefits Up-rating Order which is laid in Parliament in January and debated in both Houses before coming into force at the beginning of the new tax year.

By convention under successive governments, in order to meet these timescales, the Secretary of State uses the Consumer Price Index (CPI) for the 12 months to September, which is published by the Office for National Statistics in October. On average, September CPI is higher than the following April half the time, and it is lower half the time. Using actual inflation figures for the previous September ensures that over the medium term benefit rates will always match actual inflation trends. There is no risk that they will lose their value in real terms.

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