With Chancellor Hunt now on his feet in the chamber, experts have been sharing their reaction to the Autumn Statement announcement that the State Pension will increase by 8.5% from April 2024, maintaining the manifesto pledge to stick with the Triple Lock.
Fresh out of the blocks was Dean Butler, Managing Director for Retail Direct at Standard Life, commenting on State Pension Triple Lock being retained and pensions increasing by 8.5% from April 2024 who said: “There will be no fiddling with the triple lock formula this year as the Chancellor confirmed his intention to offer those in receipt of the state pension the full 8.5% due as a result of increases to average earnings. There had been some speculation that we may see a reduced offer of 7.8% to reflect the fact that some of the earnings growth was due to a one off payment to public sector workers.
“The last couple of years have seen exceptionally large increases applied to the triple lock as a result of inflation and wage growth and questions surrounding the growing cost remain. A proposed review of the state pension was pushed out earlier this year reflecting the highly sensitive nature of the policy this side of an election.”
Also quick off the mark is Sian Steele, Head of Tax at professional services and wealth management firm Evelyn Partners, who comments on the State Pension announcement saying:
“This will be very welcome to those receiving, or about to receive, the state pension at a time of rising living costs.
“With an election on the horizon, the political consequences of tinkering with the triple lock might have figured in the Chancellor’s calculations. Whether the state pension can be increased in the same way over the long term alongside an ageing population is another question.
“With the inclusion of bonuses in the earnings element of the triple lock, many in the Treasury are probably lamenting a missed opportunity to save the public purse some extra outlay.
“The 8.5% hike now nailed on for April means the state pension will cost the Treasury £2billion more in 2024/25 than the Office for Budget Responsibility forecast at the Spring Budget and that comes hot on the heels of this April’s bumper 10.1% state pension hike, which added £11 billion to Government spending in 2023–24.
“Adjusting down the prescribed rise for April to 7.8% – the rate of earnings growth excluding bonuses – would inevitably have attracted criticism, and might not have saved a huge amount for the public purse. But it would arguably have been quite a sensible alteration.
“The surprise is more that successive governments have allowed bonuses to be included in the calculation, as they are volatile and something that only a small proportion of the working population benefit from – and this year’s figure was particularly distorted by a one-off NHS deal. It’s also not clear why the inflation and earnings growth elements of the triple lock are taken from one month and three months respectively, rather than longer periods that would give a more stable and accurate picture.
“Outside of an election year, this could be a relatively uncontroversial reform to the triple lock, as it’s clear that demographic and life-expectancy trends will escalate costs to the Treasury from the state pension over the coming years.
“From a tax point of view, this increase for the state pension takes it a step closer to the frozen annual personal income tax allowance, which means that a retiree will not need a great deal of private income in retirement – whether that is from a personal pension, investments or property – before they pay tax at the basic rate of 20%.
“The new flat rate annual state pension of £11,501 in the 2024/25 tax year, is just £1,069 short of the £12,570 tax-exempt allowance as it stands in 2023/24.”
Commenting on the Chancellor’s confirmation that the State Pension Triple Lock will increase by 8.5%, Steven Cameron, Pensions Director at Aegon said:
“State pensioners will be relieved that the Government has honoured the state pension triple lock in full. This could deliver an increase of over double the ruling inflation rate next April.
“But this needs to be paid for out of the National Insurance contributions of today’s workers which raises concerns over intergenerational fairness and there is still a huge question mark over whether the triple lock is affordable longer term.
“We hope all political parties will set out their future policy on the triple lock in their pre-election manifestos. We believe the formula should be adjusted to look at averaging over a 3 year period rather than a three way comparison each year.”
Claire Trott, St. James’s Place, comments: “With the triple lock being honoured, the state pension will increase in April by 8.5%. However, those who have saved for their retirement and have other income, or are in fact still working, won’t see the whole benefit of this increase due to the frozen personal allowances and tax bands.
“Take the example of someone with extra income of £5,000pa gross. With a full new state pension they would have paid around £613 in tax, which is 20% of their income, including the state pension over the personal allowance of £12,570. Assuming that the personal allowance remains frozen in 2024/25 as expected then the same person next year will pay tax of around £794, even though we are assuming the income outside of the state pension isn’t increasing.
“This basically means that the increase in state pension will be eroded and they will only really benefit from an increase in the money they have in their pocket of 6.8%. This would be exacerbated for those who have more private income and fall into higher rate bands. We should remember that state pensions are paid gross and any taxation is usually taken from other sources of income if possible through tax code adjustments, or for those with income outside of the PAYE regime, through self-assessment at the end of the year.”
Jon Greer, head of retirement policy at Quilter said:
On the State pension: “Tinkering with the triple lock measure will be something the government would have been loathed to do given it will upset the Conservative party’s core voters. Being able to announce they are keeping the measure as is today will therefore represent a boon for Hunt and Sunak. This will set the uplift for next year’s full State Pension payment (for those reaching state pension age from 6 April 2016), which will increase to £221.20 per week, or £11,502.40 per year. This level of uplift follows the inflation matching 10.1% boost that saw the 2023/24 state pension rise to £203.85 a week, or £10,600 annually.
“However, once again the triple lock and all its problems gets punted down the road for the next government to think about. There is a growing problem with the state pension and it’s unfortunate but not unsurprising that this government have not opted to make long term but potentially unpopular decisions about reforming how our state pension is uprated.
“The potential reform of how the state pension is calculated requires a delicate balance between protecting the income of retirees and ensuring the long-term sustainability of the pension system. The triple lock, which ensures that pensions rise by the highest of average earnings, inflation, or a minimum of 2.5%, has been crucial in safeguarding pensioners’ income. However, this system can be financially unpredictable and may not be sustainable in the long run.
“A more sustainable approach could involve linking pensions to a fixed percentage of average earnings. This method would align pension increases with the economic prosperity of the country, ensuring that pensioners’ incomes grow in tandem with the working population. It also offers more predictability for budgetary planning and could be perceived as a fairer system, especially for younger generations who currently contribute to the pensions of retirees. Transitioning to such a system, however, would require careful consideration and planning to protect current retirees while laying a sustainable foundation for future generations so it is unsurprising but disappointing that Hunt has not tackled this issue.”
On Benefits more widely: “Traditionally, welfare benefits, much like state pensions, are adjusted annually based on the previous year’s inflation up to September. This method ensures that while there is a lag in adjusting to current inflation rates, the real value of these benefits eventually aligns with economic conditions. If they had moved the measurement month to October, the government would have effectively excluded the typically higher inflation of September from its calculations. This exclusion, especially in times of high inflation like September 2022, would have meant that the uprating may not fully compensate for the increased cost of living, leading to a de facto reduction in the real value of welfare benefits. Over time, this can amount to a considerable reduction in support for those reliant on these benefits. It is therefore good news that they have kept the original uprating measure in place.
“Maintaining a welfare system that adequately supports those in need, particularly during times of economic hardship is of utmost importance. Had the decision to change the uprating measure to October’s inflation rate mean made it would have overlooked the fundamental purpose of welfare benefits – to provide a safety net for the most vulnerable in our society.”
Plans to maintain the triple lock on pensions in full, with an 8.5% uplift in the State Pension next Spring generated this reaction from James Carter, Head of Platform Product Policy, Fidelity International, as he comments: “Today’s announcement will be welcomed by those dependent upon income from the State Pension, as the Government commits to maintaining the triple lock on pensions – with an uplift of 8.5% in line with earnings next Spring, honouring the triple lock in its full form.
“However, debate about the future of the triple lock as a formula for determining the annual increase to the state pension will likely persist. Economic volatility and issues of cross-generational fairness will continue to force difficult political and fiscal debate as we race towards a General Election in 2024. Analysis by the Institute for Fiscal Studies illustrated that, in applying the higher of the increase in prices and wages, the State Pension has increased more quickly than it would if either measure had been used individually.
“The policy intention when the triple lock was originally put in place was to address the perceived level of developing pensioner poverty over time. It wasn’t simply an annual revaluation formula. Now is the time to consider the right and stable basis for the future of the UK State Pension so consumers have certainty. We live in a more volatile economic and political environment and a resilient future strategy is needed. To achieve this, one cannot consider the role and level of the state pension in isolation. A broader review of the UK pension system is required, taking into account the state pension alongside the development of the automatic enrolment regime. Considerations must be made towards both eligibility for automatic enrolment, how the quantum of contributions might increase in the future and how workplace pensions together with the State Pension can provide fair and adequate retirements.”
Phoenix Group’s Patrick Thomson, head of research and policy at Phoenix Insights comments:
“State pensioners will welcome news that the government has committed to maintaining the triple lock without adjustments. The triple lock has been an important policy to ensure retirees’ income has kept pace with rising prices or increases in the working population’s wages, and today’s announcement means the state pension will rise by 8.5% next April.
“Decisions around the state pension carry huge significance given the impact on a large proportion of the electorate, so any adjustment to the triple lock could have led to wider political ramifications in the lead up to the next general election.
“Polling from Phoenix Insights found people of all ages believe the state pension exists to ensure everyone has a minimum level of income in retirement and 82% of adults said it should support older people who are unable to work*.”
Jamie Jenkins – Director of Policy, Royal London said when commenting on the Triple Lock news:
“The triple lock has proved a lifeline for pensioners struggling to keep their heads above water mid the greatest cost of living shock in modern times. In committing to an 8.5% hike, the Chancellor has honoured the Government’s pledge and offered reassurance to millions that they will be able to stay ahead of the inflation curve for the short-term at least. We now need a sensible plan for what it is trying to achieve, and what will replace it once we agree that the State Pension has reached a reasonable level.”