Figures out this morning (17 October) from the Office for National Statistics (ONS) showed the allowance - the maximum a saver can save tax free over the lifetime of their pension pot - will in crease to £1,054,720 in 2019, after the CPI rate dropped from 2.7 per cent in August.
The state pension is expected to rise in line with the 2.6 per cent earnings growth figure from July 2018, to £8,767.20 per year.
Under the terms of the triple lock policy, the state pension needs to be uprated by the highest of earnings, prices or 2.5 per cent.
Inflation went down to 2.2 per cent in September alongside the 2.4 per cent rate for prices, meaning earnings come out top.
The full new state pension is set to increase from £164.35 per week to £168.80 per week, while the old basic state pension will increase from £125.95 per week to £129.35 per week.
Earlier this month (2 October) advisers said the government should scrap the lifetime allowance, after HM Revenue and Customs (HMRC) revealed the amount of money raised from those exceeding it had surged almost 2,000 per cent over the past decade.
Tom McPhail, head of policy at Hargreaves Lansdown, said: "Many people would like to see the lifetime allowance scrapped because it penalises good behaviour; those who save prudently and invest well are likely to be taxed for their pains.
"In the meantime, even an inflation-linked increase to the limit will be welcomed by the increasing numbers of people who are now being caught by this restriction."
Kate Smith, head of pensions at Aegon, said: "Although this is a relatively small change, for those approaching the lifetime allowance this extra £24,800 could make a big difference in the amount saved without attracting a tax charge.
"The limit won’t just affect the wealthiest, people on middle incomes who have been saving into a direct benefit pension for a long time can also be caught by the tax hike that comes with surpassing the allowance.
"For people approaching this limit, therefore, financial advice is particularly important. However, with speculation about the chancellor targeting the lifetime allowance in the Budget in just under two weeks, let’s hope this increase is not undone."
FTAdviser recently reported (15 October) there were predictions that the chancellor’s autumn budget would see the annual allowance being cut from the current £40,000 to close to £30,000.
Meanwhile, at the Conservative party’s conference earlier this month (1 October) Esther McVey, secretary of state for the Department for Work and Pensions (DWP) said the government would continue to provide the triple lock on pensions.
Mr McPhail said: "One of the most brutal lessons of the last election campaign for the Tories was to not take their core constituency for granted and don’t upset pensioners.
"It was no surprise then to see the government reiterated its commitment to the triple lock for the remainder of this parliament.
"At some point in the future a government is likely to have to grasp the nettle and move away from the triple lock. If this doesn’t happen then the state pension will inexorably increase relative to earnings and inflation. In the meantime, the state pension provides pensioners with a vital bedrock income to cover much of their essential expenditure in retirement."
rosie.quigley@ft.com
