- September inflation stickier than expected at 6.7%
- State pension seen rising by 8.5% from next April
- Concerns government may tweak wage growth data
While inflation remained sticker than expected in September coming in unchanged at 6.7%, there was good news for Britain’s retirees assuming the government upholds its pension triple-lock promise.
Under this arrangement the annual increase in the state pension is the higher of average wage growth, inflation and 2.5%.
This means annual inflation for the year to September is now running below average seasonally adjusted wage growth which came in at 8.5% for the three months to July.
Meanwhile core inflation, which excludes food and energy prices, fell to 6.1% from 6.2%. The headline number is lower than forecast by the Bank of England, giving some commentators hope that a pause in interest rates could be in the cards.
WHAT DOES THIS MEAN FOR RETIREES?
Assuming July’s earnings growth is used for the triple-lock, it would imply an increase in the old state pension (for those who reached retirement age before 6 April 2016) to £169.5 per week and a new state pension of £221.2 per week from April 2024.
Head of retirement policy at AJ Bell, Tom Selby, commented: ‘Provided the government sticks to its state pension triple-lock promise, today’s CPI (Consumer price inflation) figure should confirm an inflation-busting 8.5% increase for April next year.
‘While that will cost the Treasury billions of pounds, it may be viewed as a price worth paying for prime minister Rishi Sunak given the proximity of the general election and with the Conservatives trailing Labour in the polls.
‘If this earnings measure is used, the new state pension will surge to over £11,500 a year – although many will see some of that benefit taxed away if the personal allowance remains frozen at £12,570.
WILL THE GOVERNMENY TWEAK THE INCREASE?
Despite the government’s commitment to the triple-lock there are concerns it may argue that wage increases have been distorted by one-off public sector bonuses such as those paid to the NHS and civil service.
This would mean a lower 7.8% increase is applied which would allow the government to save some cash and maintain the commitment to the triple-lock.
But, as Tom Selby points out, ‘it would inevitably face accusations of a stealth attack on pensioner incomes’.
Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (Martin Gamble) and the editor of the article (Ian Conway) own shares in AJ Bell.
