The elderly are set to receive a 2.5 per cent state pension boost next year, as the ‘triple lock’ pledge kicks in if inflation remains low in September.
Under the triple lock, rises in state pension are decided by whatever is the highest of price inflation, average earnings growth or 2.5 per cent.
Figures out on Wednesday are expected to show consumer price inflation rose to 0.4 per cent in September – up from 0.2 per cent in August but well below the triple lock.
State pension boost: Wednesday’s CPI inflation announcement for September will confirm the ‘triple-lock’ state pension boost retirees can expect from April next year
Meanwhile, the Covid-19 crisis has also hit wages, making it all but certain that the state pension triple lock guaranteeing a 2.5 per cent rise in state pension will kick in.
It means from next year, pensioners are set to get an extra £4.40 a week to the ‘new’ state pension introduced in April 2016 – from £175.20 to £179.60. Those on an ‘old’ basic-rate state pension will get an extra £3.40 a week – from £134.25 to £137.65.
The Government has previously used CPI in September and average earnings in the three months to July to determine the triple-lock state pension increase.
Tom Selby, senior analyst at AJ Bell, said: ‘With COVID-19 hammering wages and pushing inflation to almost 0 per cent, the value of the state pension triple-lock has never been clearer.
‘If it were not for the policy, pensioners would likely see their state pension frozen next year.’
|Current state pension||2021/22||2022/23||2023/24||2024/25|
|Triple-lock increase (%) based on OBR projections||2.5%||5%||2.7%||3%|
|State pension value (flat-rate)||£175.20||£179.60||£188.60||£193.70||£199.55|
|State pension value (basic-rate)||£134.25||£137.65||£144.55||£148.50||£153.00|
|Source: OBR Financial Stability Report and AJ Bell analysis; state pension increases rounded up to nearest 5p|
If a 2.5 per cent increase is confirmed on Wednesday, it would be the fourth time the triple lock kicked in since the policy was introduced in 2011, meaning the value of the state pension will increase in real terms against both workers’ average wages and the price of goods and services.
It will also mean that, since the introduction of the triple lock, the basic-rate state pension will have increased by 41 per cent, according to calculations by investment platform AJ Bell.
Meanwhile, the flat-rate new state pension – introduced in 2016 – will have risen by 15 per cent.
The prospect of making an outsize handout to pensioners as the rest of the nation remains hard up, and the need to scrape together some cash to pay for fighting the pandemic, are weighing on Chancellor Rishi Sunak.
The triple lock – which the Conservatives pledged to keep in their election manifesto last year – has been reportedly under threat thanks to the pandemic, although Sunak recently said it will not be removed in the near future.
The full state pension, currently £175.20 a week, or around £9,100 a year, is a crucial source of income for many retirees, especially those who haven’t got much saved in work or personal pensions.
Selby claims it is inevitable that the policy will come under review next year as the Treasury’s Covid-19 bill is set to soar above £300billion.
‘If the economy bounces back substantially next year and average earnings surge then the costs of the triple-lock risk ballooning,’ he added.