With inflation coming in below expectations in September, the state pension is set to rise 2.6% from April next year – slightly below the 3% increase seen in both 2017 and 2018.
The Office for National Statistics today confirmed Consumer Prices Index (CPI) inflation stood at 2.4% in September. It is the September figure that is used to set the so-called ‘triple-lock’, which guarantees the state pension increases in line with the highest of inflation, July’s ‘average weekly earnings growth figure or 2.5%.
Since average earnings growth stood at 2.6% in July, this figure will be used to boost the value of the state pension. It means the annual flat-rate state pension will rise £221 next April to £8,767.20. For its part, the lifetime allowance will increase in line with September’s CPI inflation figure, meaning it will rise by £24,720 to £1,054,720 next year.
AJ Bell senior analyst Tom Selby said: “Today’s figures will provide a welcome income boost to millions of people currently in receipt of the state pension. Those who receive the flat-rate amount will see their annual payment increase by more than £220 in April next year – a smaller increase compared with last year but still not to be sniffed at. With inflation returning to the economy, the value of protection against rising prices is not to be underestimated.
“In the context of the triple-lock, it is worth noting the guarantee will cost the government nothing compared with the earnings and inflation ‘double-lock’ some have proposed. It is only in a low-inflation, low-earnings environment that the promise begins to bite.”
Bucking a trend
Selby suggested the government’s decision to peg the lifetime allowance to inflation from 2018/19 bucked a long-established trend of sharp cuts in the limit. “The extra £24,720 available from April next year will be useful to savers, representing a tax-free cash boost of £6,180,” he added.
“This does of course assume chancellor Philip Hammond will not once again take the axe to the lifetime allowance in his Budget later this month. Such a move would risk sending a seriously negative anti-savings message, as well as adding more unwelcome complexity, as new ‘protections’ would inevitably be needed for those close to or over the new, lower limit.”