Nucleus Financial Platforms, one of the UK’s independent adviser platform groups, explains the impact of today’s inflation figures “on triple lock calculations for state pensions from April 2024 and calls for a sensible discussion around the future of the triple lock and the state pension system as a whole.”
CPI Inflation for the year to September 2023 “was 6.7%, the same rate as August (Consumer price inflation, UK – Office for National Statistics).”
This means prices are rising at the same fairly high rate “as the previous month, well above the Bank of England’s 2% target.”
September’s inflation figure is particularly important “as it drives increases to many state benefits, increases in many pensions in payment from public sector pension schemes, and is part of the triple lock calculation for state pensions.”
The triple lock means state pensions increase “by the highest of inflation, earnings and 2.5%.”
This year the highest of those three is “the 8.5% increase in earnings in July (this is higher than the CPI inflation of 6.7% to September and the fixed 2.5%).”
However there are suggestions the Government may “use a lower figure of 7.8% as this is earnings growth excluding bonuses.” The total increase in earnings is “affected by one-off payments made to the NHS and civil service in June and July 2023.”
The potential new state pensions from April 2024
If the headline single tier state pension “increased by 8.5%, from April 2024 it would be £221.20 a week, up from the current £203.85 a week.”
If it was increased by the lower 7.8% figure it would “be £219.75 a week.”
The maximum basic state pension paid to those “who reached state pension age before 6 April 2016 is currently £156.20 a week and it would increase to £169.50 s week (assuming 8.5% increase) or to £168.40 (at 7.8%).”
An 8.5% increase in state pensions “will cost around £7.6bn a year, whereas a 7.8% increase would cost approx. £7bn, so there is a significant saving if the Government use the lower earnings figure, excluding bonuses.”
The Government will make “an announcement on State Pension uprating later this autumn confirming the final figures.”
Andrew Tully, Technical Services Director at Nucleus said:
“The large increase in the state pension from April 2024 will be a welcome boost to the many people who are struggling given the current cost of living crisis. The last couple of years has taken its toll on finances, with many having to make difficult choices to make ends meet. Like many people we believe that the triple lock is not sustainable over the long term. We need a sensible discussion around the future of our state pension system as a whole.”
As noted in the update:
“This includes what a reasonable state pension provision looks like and potential future increases to state pension age, as well as the future of the triple lock. The wider debate could also consider differing life expectancy across the UK, increasing private pension savings through auto-enrolment, and support for those below state pension age who aren’t able to work.”