At a time when the rising cost of living is making the headlines, a pension increase should be the good news that people were hoping for.
Unfortunately, the cost of living is rising at such a fast rate that the additional state pension won’t be enough to offset the increase in outgoings.
What is the state pension increase for 2022?
On 11 April 2022, UK benefits and state pension payments increased by just over three per cent. Those with the basic state pension will see their payments increase by £4.25 a week, and those on the full new state pension will get an additional £5.55 a week.
This may seem like a decent rise, but it is not in line with the current rate of inflation.
Why is the state pension rise lower than inflation?
Normally, the state pension will rise at pace with the cost of living, thanks to the triple-lock formula. This stipulates that the state pension increases each year by the highest of the following:
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Inflation
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Increase in earnings between May and July
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Two and a half per cent.
So, why has the pension not met the rate of inflation (currently at just over six per cent)? That’s because the increase was calculated in September 2021 - before the UK was to feel the full force of the cost of living hikes.
Do I need to register for the state pension increase 2022?
No, your payments should automatically go up.
Will my state pension increase if I now live abroad?
As an expat, you will benefit from the state pension increase if you live in the European Economic Area, Gibraltar, Switzerland, or a country with a social security agreement with the UK (excluding Canada and New Zealand).
If you live outside of these countries, you won’t receive the increase. However, your pension will go up to the current rate if you return to live in the UK.
Will the state pension increase compensate for the rise in energy bills?
Not completely. Although your pension may go up by £288 for the year, this will not be enough to cover the increase in fuel bills you will likely face. On average, dual fuel bills (electricity and gas) have increased by £700 a year for the average household.
Can I get help with paying my energy bills as a retiree?
There are a few schemes out there to help people manage fuel bills:
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Winter Fuel Payment – this is an annual tax-free sum (between £100 and £300) to help cover your fuel costs over the winter months.
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Cold Weather Payment – during spells of very cold weather, you may be able to receive additional payments for your fuel bills if you receive certain benefits, including Pension Credit.
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Warm Home Discount – if your electricity supplier is part of the Warm Home Discount scheme, and you or your partner receive the Guarantee Credit portion of Pension Credit, you will receive this one-off payment in winter. If this applies to you, make sure the person receiving Guarantee Credit is named on the bill.
You may be able to receive more than one of these payments.
How can I boost my retirement income?
There are different options to help build up your retirement income while you wind down.
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Continue working part time – you don’t have to retire when you hit retirement age if you don’t want to. Staying in employment for a few more years could enable you to build up your savings. Plus, your pension pot will be invested for longer, which can help it achieve more growth. You can contribute up to 100 per cent of your earnings - or £40,000 - to your pot and gain tax relief on it, (this is your annual allowance). Just bear in mind that your annual allowance may shrink significantly if you start dipping into your pension pot, so get advice first.
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Generate other income – you might not have to stay in employment to keep earning during retirement. You could turn a hobby into a small business, rent out a spare room, or downsize your property to release equity and reduce your bills. This additional income could enable you to defer your pension or simply give you more disposable income to enjoy.
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Defer your state pension – although you can start receiving your pension when you reach retirement age, you don’t have to claim it. If you reached this age after 2016, then the amount you receive from your pension will increase by the equivalent of one per cent for every nine weeks you defer. In a year, the increase is just below six per cent.
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Make the most of your eligibility – you will become entitled to some freebies when you get older, which can help to relieve pressure on your weekly budget. Once you reach 60, you are eligible for free NHS prescriptions and eye tests. You can get a free bus pass when you reach state pension age in England or when you reach 60 in Scotland, Wales and Northern Ireland. You may be able to travel for free on some trains and buses, and you can get the 60+ Oyster photocard for free travel on London buses, tubes, trams and the overground.
You can find out more about the financial support you might be eligible for here.
Getting the right financial advice for your circumstances is key. Find your perfect financial adviser now.
