‘Stubborn’ inflation could see state pension rise 8.5%

The consumer prices index rose 6.7 per cent in September, stagnant from 6.7 per cent the month before, according to the Office for National Statistics.

The ONS said the largest downward contributions to the rate came from food and non-alcoholic beverages, where prices fell on the month for the first time since September 2021, and furniture and household goods, where prices rose by less than a year ago.

Rising prices for motor fuel made the largest upward contribution to the change in the annual rates.

However, today’s CPI figures confirmed that state pension triple lock uprating for 2024/25 will likely be determined by the 8.5 per cent earnings figure, if the government keeps its triple lock pledge.

The triple lock increases the state pension by the higher of earnings data, inflation or 2.5 per cent.

Data published yesterday confirmed that wages grew by 8.5 per cent in the year to July, indicating the state pension is likely to rise in line with this earnings figure, bringing the full new state pension amount from £203.85 to £221.20 a week.

Patrick Thomson, head of research analysis and policy at Phoenix Group, said September’s CPI figure completes the final part of the triple lock equation.

It means, subject to any adjustments, the average earnings figure will deliver an 8.5 per cent increase to the state pension come April next year.  

“12.6mn people are currently in receipt of the state pension, so any last minute tweaks to the triple lock will have a material impact on the day-to-day lives of millions of people, not least those for whom the state pension is their only source of income,” he said.

“More than a third of adults over 66 who are still in work expect the state pension to be their main source of income in retirement.”

Thomson explained that when thinking about the costs of the triple lock and the state pension more broadly, the government needs to consider two important factors: how much people are paid through the state pension and what age they will receive it. 

Becky O’Connor, director of public affairs at PensionBee, said: “With earnings generally rising at a faster rate and the cost of food coming down slightly, according to the ONS data, there may be more breathing space for those families who have had a pay rise - and possibly even a bit more money left at the end of the month. 

"Those who haven't benefited from a higher-than-inflation pay increase continue to remain squeezed.”

O’Connor explained that the scene is set for another rise in incomes for pensioners in April - in line with earnings growth, which is now higher than inflation. 

“Unless the government breaks or alters the terms of the triple lock, this would be 8.5 per cent,” she said.

“While the sustainability of the triple lock as a mechanism for state pension rises remains in doubt, there is little doubt that decent rises help to keep pensioners out of poverty. 

“It’s unlikely the government would risk losing votes over such a vital part of the state welfare system before a general election.”

Government action

Elsewhere, Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said this news will be welcomed by pensioners who have been struggling during the cost-of-living crisis, but as the second blockbusting increase in a row it does add to the government’s headache as to how much it will cost.

“The wage data has been inflated by one-off bonuses given to NHS workers and civil servants over the summer. If we strip out bonuses the figure is 7.8 per cent. 

“The last time wage data was seen to be inflated was during the pandemic, with the government opting to suspend the triple lock and use the inflation figure instead.

“There is a chance we could see further triple lock tinkering this year with the government looking to manage the eye-watering cost by either opting to go with inflation or potentially taking the wages figure without bonuses.”

She explained that if the government were to part way with the triple lock again, it would strengthen the case to get rid of it completely. 

The consensus seems to be growing that it is unaffordable long-term and thought needs to be given as to alternative methods of uprating the state pension. 

“We would like to see an overarching review of the state pension, and the triple lock’s role within it, to give pensioners more certainty around how and when they receive their state pension,” she added.

Stephen Lowe, group communications director at retirement specialist Just Group, said the government must now decide whether to implement an 8.5 per cent increase in the state pension next April, which will follow the 10.1 per cent increase applied earlier this year or suspend the triple lock. 

“There is recent precedent for suspending the triple lock when the government said the pandemic had distorted wage growth and chose the lower inflation figure to apply to the 2022/23 state pension,” he added.

“The prime minister must now weigh up his party’s manifesto commitments, the state of the nation’s finances and his chances of success in a coming general election before making a decision which is expected to be announced in the Autumn Statement. 

“It won’t be an easy choice, especially for a Conservative government whose party has traditionally relied heavily on older voters.”

sonia.rach@ft.com

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