Pensioners are set to enjoy an inflation-busting 4 per cent increase to the state pension next April, after official inflation figures were published today.
The Office of National Statistics revealed that the Consumer Price Index in September remained unchanged at 1.7 per cent. The state pension is protected by a ‘triple lock’, meaning this benefit is raised either in line with prices, earnings or 2.5 per cent – whichever is higher.
When calculating this it is September’s price inflation figure and July’s earnings inflation figure that are taken into account. With earnings inflation standing at 4 per cent in line July, this means pensioners will see a significant uplift to their pensions next year.
However September’s inflation figures are also used to calculate annual increases to the lifetime allowance for defined contributions pensions. This is the maximum that can be saved into pensions before additional tax charges apply.
This relatively weak inflation figures means that this allowance is expected to increase by just 1.7 per cent next April. As it currently stands at £1,055,000 this should mean an increase to £1,075,000 (subject to Government confirmation and rounding to the nearest £5,000).
Aegon’s pensions director Steven Cameron says: “Today’s inflation figures have important implications for pensions. While this 4 per cent increase will be welcomed, for those over 75 who are not receiving pensioner credit, it will be partly wiped out when they start having to pay for their £154.50 annual TV licence fee.”
He adds: “Although any increase to the Lifetime Allowance is welcome, these increases are in line with price not earnings inflation.
“With wage growth remaining much higher than inflation, this means in earnings terms the lifetime allowance is becoming less and less generous, leaving more individuals, and not just particularly high earners, at serious risk of breaching the limit.
“Recent figures show that the total value of Lifetime Allowance charges paid by schemes in 2017-18 was £185 million, a 28.5 per cent increase from 2016-17.”
Cameron adds: ““The effect of pension allowances (both the lifetime and the separate annual allowances) has been in the spotlight recently with highly paid professionals in the NHS pension scheme refusing extra work or even retiring early to avoid big tax bills associated with their pensions.
“We urge the Government to carry out a fundamental review of these allowances, as has been recommended recently by the Office of Tax Simplification.”