Even if the State Pension was uprated in line with September’s inflation figure of 10.1 per cent, pension savers would still need to build up a pot of around £550,000 to ensure a comfortable standard of living in retirement, according to new figures shared with City A.M. this morning.
The data comes amid the increased uncertainty over whether the Truss government will uphold or break its commitment to the Triple Lock which should take annual SP income to £10,600.
The PLSA’s Retirement Living Standards show that £33,600 annual income is needed to achieve a ‘comfortable’ standard of living.
That leaves a £23,000 gap to fill even if the State Pension was uprated – requiring a total pot of £550,000, according to research by consultancy Broadstone, shared with City A.M.
The triple lock guarantees that the state pension rises every year in line with inflation, earnings or 2.5 per cent – whichever is highest. September’s inflation figure, at 10.1 per cent, would normally be part of the calculation.
The policy helps to ensure pensioners’ living standards keep up with those of the wider population. More than 12 million people receive the state pension.
“Many pensioners struggle for income every year and a failure to uprate in line with inflation would be another hammer blow ahead of a tough winter,” said Rachel Meadows, Head of Pensions and Savings at Broadstone.
“However, it is important that people at all stages of their pension-saving journey are aware of just how meagre the UK State Pension income is in terms of meeting regular expenditure.”
Latest inflation hit
This morning’s inflation figures mean that retirees could see their state pension boosted by a whopping 10.1 per cent in 2023/24, but only if Chancellor Jeremy Hunt doesn’t ditch the triple-lock.
The increase would be in line with September’s Consumer Prices Index (CPI) inflation figure, which is usually used for benefits uprating
Increasing the state pension by inflation rather than average earnings would cost the Chancellor an estimated £4bn-£5bn.
If the triple-lock is retained and the state pension is uprated by 10.1 per cent next year, it mean the full flat-rate state pension, paid to those reaching state pension age from 6 April 2016, will increase from £185.15 per week to £203.85 per week, or £10,600.20 per year, from April next year.
Moreover, the basic state pension, paid to those who reached state pension age before 6 April 2016, will increase from £141.85 per week to £156.20 per week, or £8,122.40 per year.
However, if earnings growth for the three months to July (5.5 per cent) is used instead, the the 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.
To clarify, 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 per cent inflation-linked increase.
“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,” explained Tom Selby, head of retirement policy at AJ Bell.
“That would be a hugely welcome retirement income boost for millions of older people at a time when living costs are surging,” he stressed.
“The difference this decision will make to people’s state pension incomes from next year will be massive.”Tom Selby
“However, the decision over whether or not to retain the ‘triple-lock’, which increases the state pension by the highest of average earnings, inflation or 2.5 per cent, is on a knife edge,” Selby pointed out.
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.
Paused during pandemic
The triple lock was previously paused for a year, as the coronavirus pandemic had distorted the wages element of the triple lock. Pensions rose by 3.1 per cent this year.
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,” Selby said.
Someone receiving the full flat-rate state pension would receive £8.50 per week less, or £442 over the course of the year, if average earnings rather than inflation is used to uprate their benefits.
“For those struggling to make ends meet, that amount of money could make a real difference to their quality of life, particularly over the winter months,” Selby concluded.