Evelyn Partners reports that new data from the Department for Work and Pensions (DWP) shows a significant drop in real pensioner incomes in the 2021/22 tax year compared to the previous year.
The median pensioner real income, which includes state pension, other benefits, and private incomes, decreased from £376 in 2020/21 to £349 in 2021/22 after 25 years of steady increases or flatlining.
The DWP cautions that some of the decline may be due to sample composition and other factors, but the sub-inflation uprating of the state pension likely played a role.
In 2021/22, the state pension increased by the 2.5% ‘triple lock’ minimum, while inflation averaged 4% over the year, leading to a hit in real incomes.
Gary Smith, Partner in Financial Planning at wealth manager Evelyn Partners, notes that even when the triple lock was in force, the state pension suffered a real hit of approximately 1.5%.
He questions what the effects will be in the 2022/23 tax year when the triple lock was diluted to exclude earnings growth, resulting in a 3.1% increase amidst soaring inflation.
With the recent announcement of a 10.4% annual inflation rate in February, Smith emphasizes the importance of supplementing the state pension with a private income to maintain a decent standard of living in retirement. He recommends that workers consider saving into a workplace or private pension to provide the necessary additional income.