Due to the pensions triple lock rules people receiving the state pension could see their weekly payments increase 4 per cent from April.
Analysis from Aegon, published today (September 30), found that pensioners could see their state pension payments increase by about £7 per week due to an increase in inflation.
Under current rules, the state pension is increased by the ‘triple lock’ which is the highest of earnings growth, price inflation or 2.5 per cent a year.
The price inflation figure used is for the year to September, which will be announced in October, and follows a fall in the August figure to 1.7 per cent, down from 2.1 per cent the previous month, according to official figures from the Office for National Statistics.
But the earnings growth figure used is that to July, which was 4 per cent, meaning that pensioners are on track to receive a 4 per cent increase in their state pension payments.
This means the full new state pension will see an increase from £168.60 to £175.35 per week and the full old basic state pension will see a rise from £129.20 to £134.35 per week.
Under the new state pension system, announced in 2014, pensioners receive approximately £150 a week or more if they have paid 35 years of full-rate national insurance contributions, compared with the previous threshold of 30 years.
The triple lock was announced in 2010 as a way of making sure pensioners didn’t lag behind the working age population in terms of their state pension purchasing power.
A single person receiving the old basic state pension of £97.65 in April 2010 is now receiving £129.20, an increase of 32 per cent while prices have increased by 24 per cent and average earnings by only 20 per cent.
But the government has only committed to continue the triple lock system until 2022.
Steven Cameron, pensions director at Aegon said: “This will be welcome news for current state pensioners. However, these inflation busting increases do come at a significant cost.
“The state pension is not funded in advance so pensions are funded on a ‘pay as you go’ basis from today’s workers’ national insurance contributions.
“With the prospect of an early general election, it will be interesting to see where each party stands on commitments to retaining the triple lock for the next 5 years.”
Alan Chan, director and chartered financial planner at IFS Wealth & Pensions, expects that government will move to a double lock policy in the future.
Mr Chan said: “It’s a very generous increase well above price inflation and highlights how valuable the state pension can be because of the triple-lock guarantee, which is often overlooked.
“Questions have been raised as to how sustainable these guarantees are in the future and there have been talks in the past of it becoming a double lock guarantee instead.
“These talks may be fast forwarded as a consequence of Brexit.”
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