The latest 3.8 per cent inflation figure confirms next April’s 4.8 per cent state pension increase.
Industry experts warn the triple lock is costly, with each 1 per cent increase adding around £1.1bn a year, raising questions about fairness and sustainability ahead of the Autumn Budget.
Meanwhile, defined benefit pension members will see upratings in line with inflation, though some older schemes may not deliver full increases.
Aegon pensions director Steven Cameron says: “Today’s inflation figure of 3.8 per cent, unchanged since last month, is the final piece in the state pension triple lock jigsaw. The triple lock formula increases state pensions each year by the highest of price inflation (now confirmed as 3.8 per cent), earnings growth (4.8 per cent), or a minimum of 2.5 per cent. This means next April’s increase should be 4.8 per cent, in line with earnings growth.
“This should be good news for pensioners, representing an increase of 1.0 per cent above inflation, providing a welcome boost to pensioner purchasing power from next April.
“However, while the Labour Government did commit to retain the triple lock, we do still need to wait for formal confirmation of the increase by the Secretary of State for Work and Pensions. We’re fast approaching the Autumn Budget, with the Chancellor already signalling difficult decisions ahead.
“The Chancellor has continually emphasised she wants to support ‘working people’. And as the state pension is ‘pay as you go’ rather than funded, it’s today’s workers through taxes and National Insurance who pay for today’s state pensions. Every 1 per cent increase in the state pension costs around £1.1bn a year for all future years.
“While today’s pensioners are yesterday’s working people, if the Government decides to prioritise support for those currently working, could that mean a scaled back triple lock from next April?”
AJ Bell head of financial analysis Danni Hewson says: “Any good news on the inflation front must be seized upon, and the fact food prices actually fell in September is likely to be cause for celebration in struggling households. Staples like vegetables, milk, cheese and bread were all pared back a touch, though such tiny movements won’t make a huge difference to the overall bill when people reach supermarket tills.
“Everyone’s inflation experience is different and month to month changes must be viewed cautiously, especially when we know that farmers have had to deal with a dry and difficult summer. Inflation on goods also ticked up a bit and factory gate prices rose to 3.4 per cent.
“But the impact of those increased labour costs could be beginning to wash through, and inflation is expected to have peaked and should now gradually ease back towards the Bank of England’s 2 per cent target – though that is likely to take a significant amount of time.
“Today’s figures have also potentially given Bank of England rate setters a bit of wiggle room, with market expectations for a further quarter percentage point cut this year lifting even as the value of the pound slid against the euro and the dollar.
“For the chancellor these figures should be gingerly welcomed. It means benefits will likely be uprated next April by slightly less than had been expected and the cost of servicing all that debt will also be impacted by cooler inflation and the potential of further interest rate cuts. But 3.8 per cent is still uncomfortably high after the past few years and inflation has proved incredibly sticky in the UK compared to other G7 countries.”
Broadstone head of policy David Brooks says: “Today’s inflation figures confirm wage growth as the driver of next year’s State Pension increase. The Triple Lock will once again come under scrutiny with a 4.8 per cent rise in the State Pension raising serious questions about fairness and sustainability.
“While wage growth is a more defensible measure than inflation or the arbitrary 2.5 per cent floor, the triple lock mechanism still lacks coherence. It guarantees pension increases even when economic conditions don’t justify them, and risks entrenching intergenerational inequality. A system that links pensions to earnings – or even broader economic growth – would be more equitable and better aligned with the realities facing working households, ensuring that generations are dealing with the current economic pressures together.
“We need a more balanced and targeted approach to pension policy – one that supports those in genuine need without placing unsustainable burdens on the public purse or younger generations. Reforming the triple lock should be part of that conversation.
“Many of those with index-linked Defined Benefit pensions will see their annual income uprated in line with this inflation figure, delivering another boost to their retirement finances.
“However, this will reignite debate on those retirees who are receiving pensions from schemes that don’t increase benefits for service before April 1997. This will remain a controversial topic and while members are receiving benefits as set out by the scheme, it is easy to have sympathy for those impacted where this causes hardship.”
Schroders senior economist George Brown says: “Inflation near 4 per cent should serve as a wake-up call for markets, which continue to price in two more rate cuts next year. High inflation is at risk of becoming entrenched in the UK, due to a combination of disappointing productivity and sticky wage growth. We expect the Bank of England will keep interest rates on hold until the end of 2026 and we wouldn’t rule out its next rate move being upward.
“Public borrowing figures suggest the Exchequer is experiencing the fiscal downside of this higher inflation – through increased government spending – without being equally compensated by higher revenues. Rather than simply restoring the £10 billion of fiscal headroom through a net tightening of around £25 billion, the Chancellor should consider going further. Building a bigger buffer would reduce the risk of needing to further course correct if growth and spending diverges again from the OBR’s forecast.”
XPS Group chief investment officer Simeon Willis says: “Prices were steady over September this year and as a result the inflation rate for the 12 months has remained stable at 3.8 per cent. This contrasts with the marked fall in 10-year inflation expectations so far over October.
“The 12-month inflation print remaining flat on last month is a good sign that near term inflation may be on the turn. Longer term expectations which are driven by gilt supply and demand from long term investors, indicate that long-term inflation protection appears to be falling out of favour – another good sign.
“Defined benefit pension scheme funding will generally have been positively impacted by the recent fall in inflation expectations.”
