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Inflation at 0.5% means triple lock kicks in – but will it survive the pandemic?

Inflation at 0.5% means triple lock kicks in – but will it survive the pandemic?

Inflation (CPI) is 0.5% which means the triple lock will kick in, and state pensions will rise 2.5% in April. Many working age benefits will rise 0.5% with September’s inflation. However, at the same time, Universal Credit claimants are set to lose their Coronavirus increase, which would see their benefits fall overall. With wages dropping too, it could put the pension triple lock under pressure.

Sarah Coles, personal finance analyst, Hargreaves Lansdown:

“State pensions will rise 2.5% next April – secured by the power of the pension triple lock. However, not everyone will be so lucky: millions of people on working age benefits are very likely to see their incomes drop, and with workers still clawing their way back from the effects of the crisis, it could put the triple lock under pressure next year.

Each year, state pensions are guaranteed to rise with either September’s inflation, earnings in the three months to July, or 2.5% – whichever is highest. With earnings falling, and inflation coming in at 0.5%, the triple lock has kicked in. It’s the fourth time this safety net has been used since the policy was established.

It means the new flat rate state pension will rise £4.40 a week to £179.60. Anyone on the old system will receive a higher basic rate state pension – up £3.40 a week to £137.65.

Meanwhile, millions of people on working age benefits are set to see their incomes fall in April. Disability benefits, Employment and Support Allowance, Jobseekers’ Allowance and Universal Credit are linked to inflation – so will be boosted 0.5% in April 2021. However, at the same time, people on Universal Credit could lose the Coronavirus increase, which is worth £20 a week, which would leave around four million families worse off next year.

The crisis has seen wages suffer too. When you take inflation into account, by September they were down 0.8% in a year. As more people move off the furlough scheme, we’re likely to see average wages recover. However, for those who are moved off furlough and into unemployment, this is hardly an improvement.

This could mean more pressure on the triple lock, especially at a time when the government is looking for ways to cut costs. Next year, assuming furlough is at an end, wages are expected to rise significantly, so the triple lock would give State Pensioners a huge pay rise at a time when the working population is still likely to be clawing their way back from the economic effects of the crisis.

Many people have been calling time on the triple lock for years, but worries over its distorting effect on income between pensioners and workers in the fallout from the pandemic could tip it over the edge. This doesn’t necessarily mean some sort of guaranteed rise would be axed altogether. We could see the removal of the 2.5% underpin, or a smoothing of earnings, so the government could technically keep the lock while reducing its power.”

More than 350 savings accounts beat inflation, but it’s not enough

More than 350 savings accounts beat inflation, including the most competitive easy access accounts. The average easy access rate is 0.23%, the average one-year bond is 0.68% and the average longer term fix is 0.93% (Moneyfacts).The best easy access account now offers 0.96%, while the best one year bond is at 1.27%, and you can get up to 1.6% by fixing for up to five years.

Sarah Coles, personal finance analyst, Hargreaves Lansdown:

“Low inflation is flattering savings rates, but it can’t blind us to the reality that the savings market is on the slide. The average easy access rate has more than halved in a year, and fixed rates have fallen more than 40%.

The saving slide halted briefly this month, and average rates are marginally higher than in the depths of August. However, with the departure of NS&I from the top of the rate tables, we can expect it to kick in again. It means we can’t be lulled into a false sense of security by low inflation: we need to do the right thing for our savings before rates fall again.

This means tracking down a competitive easy access account for your emergency savings of 3-6 months’ worth of expenses. If you have more cash than this in the bank, it’s worth considering fixed rate accounts for some of it. These not only offer slightly better rates, but lock them in for the fixed period – no matter what happens.

The good news is that there are still some competitive accounts working hard to win your business, including some brand new banks hoping to make a splash by offering market-leading rates for short periods. It’s worth checking savings comparison sites regularly, so you can lock in higher rates when you get the chance.

Unfortunately just under two thirds of people say they won’t switch, and when asked why, one in ten said they knew they probably should, but they couldn’t be bothered. But we have to ask ourselves, if we’re not going to get round to switching from our high street account when our bank is offering just 0.01%, just what would it take to get us to move on?”

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