- Retirees will receive an inflation-busting 8.5% state pension boost from April next year, chancellor Jeremy Hunt has announced
- Confirmation the ‘triple-lock’ will be honoured follows rumours the Treasury was considering using a lower measure of average earnings that excludes bonuses to save cash
- As a result of the 8.5% increase revealed today:
- The ‘old’ state pension (paid to those who reached state pension age before 6 April 2016) will increase from £156.20 per week to £169.50 per week (£8,814 per year)
- The ‘new’ state pension will increase from £203.85 per week to £221.20 per week (£11,502.40 per year)
- If the government had opted to instead use the average earnings growth figure that strips out bonuses, which came in at 7.8% in July, this would have implied:
- An increase in the old state pension from £156.20 per week to £168.40 per week (£8,756.80 per year)
- An increase in the new state pension from £203.85 per week to £219.75 per week (£11,427 per year)
- Warning of ‘Groundhog Day’ debate over the state pension if triple-lock is maintained
Tom Selby, head of retirement policy at AJ Bell, comments:
“Retirees will receive an inflation-busting state pension increase next year after Jeremy Hunt confirmed the government’s ‘triple-lock’ pledge will be fully applied in April next year.
“The triple-lock promises to increase the state pension by the highest of average earnings growth, inflation or 2.5%. With CPI inflation now at 4.6% and anticipated to continue falling into 2024, today’s announcement represents a serious boost in spending power for millions of pensioners.
“For those in receipt of the full new state pension, their weekly income will surge from £203.85 per week to £221.20 per week, or over £11,500 per year.
“There had been suggestions the Treasury was considering arguing NHS bonus payouts had inflated July’s earnings figure and instead opt for the lower 7.8% figure, which strips out bonuses. This could have saved the Exchequer somewhere in the region of £1 billion but would also have left the chancellor open to the accusation of shifting the state pension goalposts.
“Given where the Conservatives find themselves in the polls and the fact older people hold huge sway at the ballot box, it is hardly surprising they opted to target fiscal restraint elsewhere.”
Future state pension policy
“The state pension triple-lock is both generous and entirely aimless. Yet there is every chance we will go into the general election with all major political parties committing to the policy in their respective manifestos. While this might be good news for pensioners in the short-term, it will mean the debate over what the state pension should be worth and when it should be paid to people is kicked down the road again.
“Any politician that advocates maintaining the triple-lock is effectively admitting the state pension is too low. Rather than putting in place a coherent plan to increase the value of the state pension in real terms, the triple-lock randomly ratchets up the state pension depending on earnings growth and inflation at a specific point in time each year.
“An independent review with cross-party support feels like the only way to break the hold the triple-lock has on discussion about the future of the state pension. Politicians need to be brave enough to kick-off an honest debate about what the state pension is aiming to deliver in retirement, how it should look over the long-term and the associated costs. Without that, we risk remaining in a triple-lock-induced Groundhog Day where the only real question is whether or not that policy will be retained.”
