- Retirees are set to receive an inflation-busting 8.5% state pension boost from April next year
- News comes after Consumer Prices Index (CPI) inflation for the year to September, the period usually used for the state pension ‘triple-lock’, was confirmed at 6.7%
- As a result, seasonally adjusted pay growth for the three months to July, which came in at 8.5% this year, should be applied to the state pension from April 2024
- Assuming July’s earnings growth figure is used for the triple-lock, this would imply:
- An increase in the ‘old’ state pension (paid to those who reached state pension age before 6 April 2016) from £156.20 per week to £169.50 per week (£8,814 per year)
- An increase in the ‘new’ state pension from £203.85 per week to £221.20 per week (£11,502.40 per year)
- If the government opts to instead use the average earnings growth figure that strips out bonuses, which came in at 7.8% in July, this would imply:
- An increase in the old state pension from £156.20 per week to £168.40 per week (£8,756.80 per year)
- An increase in the new state pension from £203.85 per week to £219.75 per week (£11,427 per year)
- If the government only provided a CPI-linked state pension increase, this would imply:
- An increase in the old state pension from £156.20 per week to £166.65 per week (£8,665.80 per year)
- An increase in the new state pension from £203.85 per week to £217.50 per week (£11,310 per year)
Tom Selby, head of retirement policy at AJ Bell, comments:
“Provided the government sticks to its state pension triple-lock promise, today’s CPI figure should confirm an inflation-busting 8.5% increase for April next year. While that will cost the Treasury billions of pounds, it may be viewed as a price worth paying for prime minister Rishi Sunak given the proximity of the general election and with the Conservatives trailing Labour in the polls.
“If this earnings measure is used, the new state pension will surge to over £11,500 a year – although many will see some of that benefit taxed away if the personal allowance remains frozen at £12,570.
“It is possible the Treasury will argue NHS bonus payouts inflated July’s earnings and so instead opt for the lower 7.8% figure, which strips out bonuses. This would allow the government to claim it has stuck with the triple-lock pledge while saving some cash, although it would inevitably face accusations of a stealth attack on pensioner incomes.
“If the earnings element of the triple-lock is axed and instead state pensions increased by 6.7%, in line with September’s CPI inflation figure, the new state pension would rise to £217.50 per week, or £11,310 per year, in April 2024. While ditching an element of the triple-lock isn’t without precedent – the Treasury did this in 2022/23, the last time earnings spiked significantly – the political dynamics have shifted since then.”
Future state pension policy
“There is every chance we will go into the general election with all major political parties committing to the triple-lock in their respective manifestos. While this might be good news for pensioners in the short-term, it will mean the debate over what the state pension should be worth and when it should be paid to people is kicked down the road again. The triple-lock remains a policy without an explicit aim, randomly increasing the value of the state pension depending on earnings growth and inflation at a specific point in time each year.
“It may well take an independent review with cross-party support to break the hold the triple-lock has on discussion about the future of the state pension. Politicians need to be brave enough to kick-off an honest conversation about what the state pension is aiming to deliver in retirement, how it should look over the long-term and the associated costs. Without that, we risk remaining in a triple-lock-induced doom loop where the only real question is whether or not that policy will be retained.”
