Retirees could see their state pensions increased by a record-breaking 10.1 per cent in April, provided the chancellor does not ditch the triple lock for the second year running.
If pensions are uprated in line with today’s inflation figures, this would mean the full flat-rate state pension is worth more than £10,000 a year – the first time it would break this barrier.
However speculation remains that the chancellor may increase the state pension by the lower ‘average earnings’ figure of 5.5 per cent instead, in a bid to curb spending in the wake of the disastrous mini Budget. Hunt has not publicly committed to maintaining the triple lock and has said “difficult decisions” like this are yet to be made.
Today’s inflation figures show that CPI was running at 10.1 per cent in September – the key figure used for calculating state pension increases under the triple lock. This states the state pension is increased in April by whichever is higher: inflation (September’s CPI figure), average earnings growth (using July’s figures) or 2.5 per cent.
If CPI figures are used, this should mean the the full flat-rate state pension, paid to those reaching state pension age from 6 April 2016, increases from £185.15 per week to £203.85 per week (£10,600.20 per year) from April next year.
Meanwhile the basic state pension, paid to those who reached state pension age before 6 April 2016, would increase from £141.85 per week to £156.20 per week (£8,122.40 per year).
However there is speculation that Hunt may use the lower earnings growth figure, of 5.5 per cent instead.
The would mean full-flat rate state pension would rise to £195.35 per week – £8.50 per week (or £442 per year) less than a 10.1 per cent inflation-linked increase. Meanwhile, the basic state pension would rise to £149.65 per week – £6.55 per week (or £340.60 per year) less than a 10.1% inflation-linked increase.
Last year the government abandoned the triple lock, as the earnings figure was “artificially high” with the pandemic and furlough distorting earnings data. Pensioners received an inflation-linked uprating of 3.1 per cent (based on September’s CPI figures). But by the time this was implemented in April prices were rising at almost twice this rate, thanks to rapidly rising food and fuel costs following Russia’s invasion of Ukraine at the start of the year.
A 10.1 per cent increase would be by far the biggest increase to the state pension over the past decade. The biggest increase was in 2012/13, when the state pension increased by 5.2 per cent (based on CPI). Pensioners also enjoyed a 4.6 per cent increase in 2011/12 (based on RPI) and a 4 per cent increase in 2020/21 (based on average earnings). In most other years the increase has been below 3 per cent.
AJ Bell head of retirement policy Tom Selby says: “Pensioners could receive a blockbuster 10.1 per cent increase to their state pension next year if today’s CPI inflation figure is used to uprate benefits in 2023-24.
“That would be a hugely welcome retirement income boost for millions of older people at a time when living costs are surging. However, the decision over whether or not to retain the ‘triple-lock’ is on a knife edge.
“On one side of the argument is Prime Minister Liz Truss, whose leadership of the country remains in crisis after the disastrous ‘mini-Budget’. Ditching the triple-lock, a 2019 manifesto commitment, for the second year in a row, and hitting millions of retirees directly in the pocket in the process, would surely deal another hammer blow to the Conservatives in the polls.
“On the other side of the debate, recently installed chancellor Jeremy Hunt has been tasked with restoring faith in the UK’s fiscal plan and is going over all spending commitments with a fine-tooth comb. In that context, providing a 10.1 per cent state pension increase – at an estimated cost to the Exchequer of £4bn-£5bn – may be viewed as an eye-watering cost.
“There is also the issue of intergenerational fairness to contend with – something which would be exacerbated even further if state pensions rise by inflation but working-age benefits are hit with a real-terms cut.”
Aegon pensions director Steven Cameron adds: “Today’s inflation figures should have offered state pensioners the prospect of a 10.1 per cent double digit increase in their state pension next April. This would have been welcomed after last April’s cancellation of the triple lock meant the increase then fell well short of increases in prices.
“But despite the government committing just last week to reinstating the state pension triple lock in full, it made clear last night that there could be a further U-turn with nothing ‘off the table’ to help fill the gaping hole in public finances.
“If the government as signalled does renege on the triple lock for another year and opts instead for an earnings-linked increase, it will save around £4-5bn next year and every future year.
“It will no doubt be weighing up the reaction of pensioner voters in the run-up to the next general election.
“Right now, state pensioners remain totally in the dark and will be on tenterhooks as we all await an official announcement. The Government has said its latest tax U-Turns aim to create confidence and stability, so we’d urge the chancellor to offer this to the many vulnerable pensioners by including a final decision in his 31st October fiscal statement.”
Canada Life technical director Andrew Tully adds: “A potential record-breaking increase to state pensions might well place the triple-lock in jeopardy as Hunt, faces a monumental task in trying to balance the books.
“If the triple-lock is ditched for a second year in a row, this flip-flop on policy effectively breaks the promise, and the Government will need to find a way to try and appease a core part of the voting electorate.
“Our recent research suggested broad support to retain the triple-lock, with over half of the voting public supporting the idea. However, the research did reveal a significant generational divide in opinion, increasing significantly amongst the older generations with 78 per cent of the over 55s agreeing it should be maintained, compared to just a third of 18-34 year olds.
“Whichever way the Government goes, the state pension is not hugely generous, and many people will want to make sure they have private provision to top up the state pension by taking advantage of contributions offered through an employer’s automatic enrolment pension scheme.”