Retired people are set for a 2.5 per cent rise in income next April, which will see people get up to £230 extra a year in their state pension.
The rise comes thanks to a triple lock system which means pensions will increase every year in line with inflation, earnings, or 2.5 per cent, depending on whichever is highest, the government has confirmed.
The biggest forecast rise is due to happen in 2022, with retirees set to receive a 4.1 per cent increase, at a time when unemployment is expected to be high.
The is the fourth time the 2.5 per cent triple lock has happened since the policy was first introduced in 2011.
Why is the increase happening?
Near the end of each year, the government sets the state pension level to be paid from the following April.
The 2.5 per cent increase for 2021 is expected to be confirmed after the consumer price index (CPI) level of inflation reached 0.5 per cent in September.
The changes were confirmed on Thursday (26 November) in a written statement by Therese Coffey, the Secretary of State for Work and Pensions.
The increase comes at a time when various job sectors are set for pay freezes. Chancellor Rishi Sunak announced a pay freeze for millions of public sector workers, although NHS workers are set for a pay increase.
What will the 2.5 per cent increase mean?
The 2.5 per cent increase in April will mean:
The new flat-rate pension will go up by £4.40 a week from £175.20 a week to £179.60 a week in April next year.The old basic state pension (for those who reached state pension age before April 2016) should go up by £3.35 a week from £134.25 a week to £137.60 a week in April.
The increase will be welcome news to retirees who potentially could have faced a pension freeze due to the tough financial climate.
Ian Browne, pensions expert at financial services firm Quilter, told The Sun: "This will be welcome news for retirees and it means the Chancellor and Work and Pensions Secretary can, for now at least, avoid accusations of breaking manifesto pledges to the elderly.
"But it will be hard to ignore the fact that giving retirees an inflation-busting income rise, while simultaneously announcing a pay freeze on many public sector workers, is a difficult message.
"Whilst state pension incomes are protected for the coming year, there will be big pressure on the government to unpick the triple lock over the remainder of this parliament."