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, 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.
Political decision uncertain
“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.
“The difference this decision will make to people’s state pension incomes from next year will be massive.”Tom Selby
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.