State pension set to rise by THREE times inflation next year – £1,155 triple lock boost
Inflation: Victoria Scholar discusses rise in interest rates
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This could come as a massive boost to pensioners who have suffered a desperate 2022, with the State Pension rising by a fraction of food and fuel costs. Next year, inflation is expected to fall just as the biggest State Pension hike ever comes into force.
In April, the State Pension rose by just 3.1 percent, due to former Chancellor Rishi Sunak’s decision to suspend the triple lock mechanism.
This has been a disaster for state pensioners, with inflation rocketing to 9.4 percent in June.
Consumer prices have risen at three times the rate of the State Pension, but next year could be a different story.
Because of the way the triple lock is calculated, pensioners are on course to get a double-digit pay rise next April, at a time when inflation is forecast to be plummeting.
This will offer partial compensation for the pain they are suffering this year.
Under the triple lock, the State Pension rises either by earnings, inflation or 2.5 percent, whichever is greater.
Last year, Sunak suspended the earnings element. This would have given pensioners a pay rise of around 8.3 percent, as wages bounced back from lockdown.
Pensioners were furious as inflation subsequently rocketed, forcing many to choose between eating and heating.
The Government has now pledged to restore the triple lock for the 2023/24 tax year.
With inflation running red hot, pensioners are likely to see the highest ever increase next year, says Andrew Tully, technical director at Canada Life. “It could be 10, 11 or even 12 percent, depending on September’s inflation figure, which is used when setting the triple lock.”
Currently, the Bank of England forecasts inflation will rise above 11 percent in October, the month after the critical September figure.
If inflation stood at 10 per cent in September, that would lift the full new State Pension above £200 a week for the first time ever, from £185.15 a week to £203.67.
It could go even higher, as the BoE inflation predictions have been too low again and again. Last year, it was predicting just five percent consumer price growth in 2022.
If inflation hit 12 percent, the State Pension would increase by £22.22 to £207.37. That would give those who retired after April 5, 2016, a maximum £1,155 increase to £10,783 a year.
That could hit their bank accounts at the same time as inflation goes rapidly into retreat.
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Accountancy group KPMG predicts inflation will average just 4.1 percent next year.
The Bank of England also expects inflation to fall sharply, returning to its two percent target in a couple of years.
If price growth slows at the same time as April’s double-digit State Pension comes into force, pensioners may get some much-needed breathing space.
Tully said because the April State Pension increase is based on previous September’s inflation figure, there is always a mismatch between the rate of increase and current inflation.
This year pensioners are at the sharp end but next year should be different. “There will always be swings and roundabouts but it should even itself out over time,” Tully says.
But he cautioned: “The State Pension increase will come too late to help many people who face tough choices as bills rocket.”
Victoria Scholar, head of investment at Interactive Investor, warned that forecasting inflation is hard due to the war in Ukraine and could be more persistent than many expect.
But she added: “It would be a welcome surprise if the State Pension does outpace inflation next year.”
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