Tips for retirees as state pension increase dwarfed by soaring living costs

Pensioners dependent on the state could be almost £1,000 in the red as the price of goods and services goes up much faster than the state pension. Our head of pensions and savings explains. 

Monday 11 April will see a rise in the state pension of 3.1% take effect for millions of pensioners. But this rise is dwarfed by the further increase in living costs that they are about to face.  

Following the rise in the state pension in April, interactive investor calculates that a retired person dependent on the new state pension could be an estimated £893 short of what they need to cover the average rise in the cost of food, energy and fuel alone this year, while those on the basic state pension could be £971 short.

The increase for those receiving a full new state pension from £179.60 a week to £185.15 a week over a year equates to a rise from £9,339 to £9,628 – £289 a year more. For those receiving a full basic state pension, the rise from £137.60 a week to £141.85. is an increase from £7,155 to £7,376 – or an extra £211 a year.

The average energy bill rise this year is expected to hit £693* – more than three times the increase in the basic state pension and 2.4 times the rise in the new state pension.

Pensioners on the basic state pension could be £482 a year short of the amount they need to cover their extra energy costs alone – and those on the full new state pension £404 short.

The average food bill is expected to rise by £180* this year. Meanwhile, petrol costs are expected to rise to as high as £2.50 a litre, which for a couple filling up a 50-litre tank every two months would cost £750 over a year, up from £441 a year on last year – an extra £309.

In total, these essential living costs – energy, food and petrol, of a pensioner, could rise by as much as £1,182 over the next year.

Becky O’Connor, Head of Pensions and Savings, interactive investor, said: “How are pensioners going to survive? They can’t magic money out of thin air. Millions are dependent on the state pension alone in retirement, at a time when the Government’s commitment to state pension provision as it stands appears to be less reliable. Many are in poor health. They can’t go out and ‘side hustle’ their way out of the cost of living crisis. They are stuck. 

“The Government suspended the triple lock for one year to account for the anomaly in earnings data brought about by the pandemic. However, the extent of the difficulty faced by pensioners dealing with high inflation since then now means that decision risks throwing millions of pensioners into poverty. Some could be forced to rely on debt.

“Extra help as a temporary measure to cover essentials in advance of the full reinstatement of the triple lock later this year could help prevent many suffering in the face of spiralling costs. It is vital that the Government reinstates the triple lock, as promised.”

Had the state pension risen under the terms of the triple lock in line with the earnings increase of 8.8% recorded in September last year (the month of figures that determines the state pension increase for the following year), pensioners dependent on the full new state pension would have been short by a far lower amount of £361 and basic state pensioners would have been short by £553 on average over the year.

Tips for pensioners:

• Take advantage of all benefits available, such as the warm homes discount https://www.gov.uk/the-warm-home-discount-scheme.
• Check eligibility for Pension Credit if you are a low-income pensioner. You may be entitled to for a number of reasons, such as not receiving a full state pension.
• Take advantage of discounts at local shops and venues that aim to help older people. Leisure centres offer discounts for the over 60s and Boots offers special rewards for over 60s with Advantage cards, among many others.
• Get involved in the sharing economy to avoid having to buy new things. Apps like NextDoor and local Facebook groups allow you to post requests to borrow items you need to use but you don’t own.

Tips for others concerned about older relatives, friends and neighbours:

• If you are concerned about older people locally who you think may be struggling, offer to do their shopping for them or help with other errands that require a car journey so they can save on petrol costs.
• Let them know about any offers or discounts you have spotted locally that they might be able to use.
• Direct them to charities such as Age UK if you think they might be struggling to keep on top of outgoings and could benefit from some independent help. StepChange can help older people who are in debt.

Notes:

• £693 energy price rise according to Ofgem https://www.ofgem.gov.uk/publications/price-cap-increase-ps693-april
• £180 food bill rise according to Kantar
• https://www.kantar.com/inspiration/fmcg/2022-wp-pre-pandemic-shopping-routines-return-but-rising-prices-spells-battle-for-uk-consumer-spend