State pension rise still locked

By April 19, 2021LinkedIn
Retirement savings

The main state pensions will have risen faster than inflation by April 2021, but these state benefits are still low compared with even average earnings. 

The new state pension (for those who reached state pension age (SPA) after 5 April 2016) will rise to £179.60 a week in April 2021 and the old (basic) state pension (for those who reached SPA earlier) will be £137.60 a week. Both increases are 2.5%, a rate secured by the so-called ‘triple lock’, which requires these pensions to rise by the greater of:

  • the increase in average earnings;
  • the rise in prices (as measured by the consumer price index (CPI)); and
  • 2.5%.

Other state pensions, such as the state second pension, rise in line with the CPI, meaning a 0.5% increase from April this year.

The 2.5% increase underlines the value of the triple lock, which this year delivers state pension recipients an increase of 2% above inflation. The new state pension and National Living Wage (NLW) both came into effect in April 2016, but 2021 will be the first year that the pension has been the faster growing of the two (by 0.3%), although this does little to narrow the significant gap between them.

Compare the positions of Jack, aged 64, and Jill, aged 66. In 2021/22, Jack works a 35-hour week for the National Living Wage of £311.85. Jill, at the new SPA of 66, will receive the new state pension of £179.60 a week – less than 60% of Jack’s earnings. The question is: why has the government set the new state pension so far below the National Living Wage for a full-time worker? And the answer is cost: the government pays the state pension, but it is employers (admittedly including the government) who have to fund the wages.

According to research from the Organisation for Economic Co-operation and Development (OECD), the UK sits at the bottom of the state pension league table for OECD members – although the new state pension is higher than its predecessor. This lowly position explains why the government has placed so much emphasis on automatic enrolment in workplace pensions since 2012. Similarly, it demonstrates the need for additional private pension provisions regardless of any increase to the state pension.


If you are interested in discussing the above with one of our experienced financial planners at FAS, please get in touch here.


This content is for information purposes only. It does not constitute investment advice or financial advice. The value of your investment and the income from it can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit with your overall attitude to risk and financial circumstances.