Chancellor of the Exchequer Rishi Sunak announced his much anticipated Spring Statement yesterday. He was under significant pressure to address the cost of living crisis, with inflation now at 6.2%, a 30 year high. However, despite recent improvements in the UK's finances, there was very little in this statement for pensioners.
The government temporarily froze the triple-lock on future state pension rises last year despite promises to the contrary. When the state pension rate for 2022/23 was set back in September 2021, consumer price inflation was 3.1%, with average earnings inflation of 8.3%. The decision to increase the state pension by consumer price inflation reduced the relative spending power of pensioners by 5.2%.
While some may argue that the link to average earnings inflation is irrelevant for those in retirement, this all comes down to relative spending power. The fact that inflation is expected to hit 7.4% during 2022, but could peak at double-digit rates in a worst-case scenario, means pensioners have been short-changed yet again. Despite promises to reinstate the triple-lock next year, will the government deliver?
In what is effectively a double whammy, the relatively low increase in the state pension is likely to see those with a private pension forced to increase withdrawals. The need for additional funds to cover the growing cost of living will also increase income tax payments from private pension funds. So-called “pension dipping” will take government tax receipts from pension payments up to £1.7 billion during the next tax year. This is £400 million higher than the 2021/22 tax year and £500 million more than the Office for Budget Responsibility forecast last October.
To make matters worse, an increase in pension fund withdrawals will lead to reduced investment returns in the future.
In line with the 3.1% increase in the state pension for the tax year 2022/23, there will be a similar rise in Pension Credit payments. These are payments made to pensioners on low incomes, paid at two different rates dependent on status.
From April, the Guarantee Credit, the maximum weekly support for pensioners, will rise from:
- £177.10 a week for single pensioners
- £270.30 a week for couples
- £182.60 for single pensioners
- £278.70 for couples
Only available to those who reached state pension age before 6 April 2016, the Savings Credit will rise from:
- £14.04 a week for single pensioners
- £15.71 a week for couples
- £14.48 for single pensioners
- £16.24 for couples
While those in receipt of Pension Credits may be eligible for further state benefits, there are serious concerns for the well-being of pensioners in the short term.
National insurance contributions
Those who continue to work into later life will benefit from an increase in the national insurance contribution threshold from £9500 up to £12,500. The increase will come in from July 2022 and lead to savings of up to £330 a year in tax. On the flip side, the 1.5 percentage point increase in national insurance contributions is still going ahead next month.
National Living Wage
The National Living Wage, paid to workers over 23 years of age, will increase from £8.91 an hour to £9.50 an hour from April 2022. For those working a 35 hour week, this equals a £1,000 annual increase. Contrary to popular belief, those of retirement age who continue to work are entitled to the National Living Wage.
Household Support Fund
While the government announced a doubling of the Household Support Fund to £1 billion, there are concerns this will not go far enough. The funds will be used to offer cash or vouchers to pay for energy bills, groceries and other essentials. However, rather than choosing the benefits system to assist those struggling, the funds will be allocated by individual councils across the UK. As a result, there are serious concerns money may not reach those in desperate need of assistance.
Spring statement with no bounce for pensioners
During the Covid pandemic and ongoing cost of living crisis, help for savers and pensioners has been minimal. While the increase in the national insurance contribution threshold will be welcomed by those working into their later years, the minimal increase in the state pension and associated credits is scandalous. Moreover, pensioners who had saved for their retirement have also been hit by record low savings rates, which are still minimal despite recent increases in the base rate.
In a further kick in the teeth, the UK government will increase its tax take from additional private pension fund withdrawals, required to cover the rising cost of living. Despite much hot air from politicians, is anyone really fighting for pensioners and those forced to work into their later years?