State pension: how much the payment amount will increase by in 2021 - and why next year’s rise is so small

How much the state pension increases each year depends on a number of factors from the previous year
This is how much the state pension is due to increase next year (Photo: Shutterstock)This is how much the state pension is due to increase next year (Photo: Shutterstock)
This is how much the state pension is due to increase next year (Photo: Shutterstock)

The state pension payment amount increases each year, but sadly for many pensioners the 2021 increase will be the smallest amount possible under state pension legislation.

But why is next year’s rise so small? This is everything you need to know.

How much will the state pension increase?

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Next year, pensioners will see an increase in their state pension of £4.40 per week.

This means that the new basic state pension is set to rise from £175.20 to £179.60 per week, meaning that the increase will see pensioners receive an overall increase of £228.80 per year.

The pay rise will begin from April 2021.

Why is the increase so small?

The 2.5 per cent increase is the smallest possible increase that the state pension could experience.

This is due to the triple lock state pension guarantee.

The triple lock was introduced to the UK state pension in 2010, and it was a guarantee that the state pension would increase at least in line with inflation.

The guarantee states that the state pension would increase by the greatest of the following three measures:

- Average earnings

- Prices, as measured by the Consumer Prices Index (CPI)

- 2.5 per cent

So for example, if average earnings were to rise by five per cent, but CPI only rose three per cent, the state pension would also rise by five per cent, as that was the greatest increase.

However, if both average earnings and CPI only rose one per cent, the state pension would still rise by 2.5 per cent, as that is the minimum increase.

The rise, representing 2.5 per cent, is still yet to be confirmed, but given the fact that September’s inflation rate is used to calculate the increase for state pensions the following year, it is almost certain.

An official announcement is expected soon.

Why is the increase so small next year?

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Given the current economic situation due to the Covid-19 pandemic, earnings and CPI has only risen by 0.5 per cent.

Jonathan Athow, deputy national statistician at the Office of National Statistics (ONS) said: “The official end to the Eat Out to Help Out scheme meant prices for dining out rose during September, partially offsetting the sharp fall in inflation for August.

“Air fares would normally fall substantially at this time due to the end of the school holidays but with prices subdued this year, as fewer people have been travelling abroad, the price drop has been less significant.

“Meanwhile, as some consumers look for alternatives to using public transport, there has been an increased demand for used cars, which saw their prices rise.”

How to claim your state pension

You will not receive your state pension automatically, instead you need to claim it.

You can claim the state pension if you’re:

- A man born on or after 6 April 1951

- A woman born on or after 6 April 1963

Using this online tool from the government, you can check when you’ll reach state pension age, your pension credit qualifying age and when you’ll be eligible for free bus travel.

You should get a letter no later than two months before you reach state pension age telling you to claim your state pension.

The quickest way to claim your state pension is by applying online, which you can do via the government website.

To claim online, you’ll need:

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- The date of your most recent marriage, civil partnership or divorce

- The dates of any time spent living or working abroad

- Your personal or joint bank or building society details

Alternatively, you can apply for your state pension in other ways, such as via the phone, by calling 0800 731 7898, or by downloading the state pension claim form and sending it to your local pension centre.

You can download the state pension claim forms on the government website.

If you do not want to claim your state person yet, you can also delay it - to do this, you don’t actually have to do anything, your state pension will automatically be deferred until its claimed.

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