The latest data, published this morning (October 16), showed that UK inflation (Consumer Price Index) was 1.7 per cent in September 2019, unchanged from August.
But September’s inflation figure is of particular importance to savers as a number of state benefits are uprated annually in line with this data, including the state pension.
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.
As the price inflation figure has fallen to 1.7 per cent, down from 2.4 per cent in September 2018, and the earnings growth figure used is that to July, which was 4 per cent, pensioners are on track to receive a 4 per cent increase in their state pension payments from April.
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.
Andrew Tully, technical director at Canada Life, said: “The increase to state pensions will be a very welcome above-inflation boost for the many retirees who are looking to balance household budgets.
“This is the third highest increase in the new state pension since the triple lock guarantee was introduced and the third time the state pension has been increased by wage growth.
“This increase does cast a spotlight on the long-term sustainability of the triple lock although government has committed to it in this parliament or until 2022, whichever comes sooner.”
Tom Selby, senior analyst at AJ Bell, said: “Such a bumper increase clearly comes at a cost to the Exchequer, and with a general election seemingly inevitable the commitment of politicians to this policy is likely to be tested.
“Given older people usually head to the ballot box in the greatest numbers, it is extremely unlikely any party will propose significant changes to this popular policy in their respective manifestos.”
Since 2011/12, the following benchmarks have been used for the annual uprating in line with the triple lock guarantee.
2011-12 | 4.6% (RPI) |
2012-13 | 5.2% (CPI) |
2013-14 | 2.5% (minimum uplift) |
2014-15 | 2.7% (CPI) |
2015-16 | 2.5% (minimum uplift) |
2016-17 | 2.9% (earnings) |
2017-18 | 2.5% (minimum uplift) |
2018-19 | 3.0% (CPI) |
2019-20 | 2.6% (earnings) |
2020-21 | 4.0% (earnings) |
The lifetime allowance also increases every April by the CPI price inflation rate to September of the previous year.
This means the lifetime allowance is expected to increase from £1,055,000 to around £1,075,000 in April 2020 for defined contribution pensions, subject to government confirmation and rounding to the nearest £5,000.
For defined benefit pensions, the lifetime allowance is set as an annual pension and this is expected to increase from £52,750 to £53.750, according to analysis from Aegon.
Steven Cameron, pensions director at Aegon, said: “Although any increase is welcome, these increases are in line with price not earnings inflation.
"With wage growth remaining much higher than inflation, this means in earnings terms the lifetime allowance is becoming less and less generous, leaving more individuals, and not just particularly high earners, at serious risk of breaching the limit.”
But Mr Tulley said the allowance needs a fundamental rethink as many people are being caught out and face huge tax bills.
Mr Tulley said: "Simply ditching it as we already limit annual contributions would simplify the system and not penalise those people who are enjoying good investment growth.”
amy.austin@ft.com
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