Pensioners could be due another bumper rise in their state pension next April, with the full annual payout rising by £742 to reach £11,342 - if inflation forecasts prove to be correct.
The value of the state pension is determined by the triple lock, which means it is uprated each year by inflation, average earnings growth or 2.5%, whichever is highest.
State pension triple lock
In April this year, the state pension rocketed by 10.6% to hit £10,600, due to high inflation.
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And it looks like inflation will once again help drive another hefty boost to the state pension next April.
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The inflation measure used in the triple lock is September’s consumer price index (CPI) rate.
Inflation is currently 8.7% and has been for the last two months, as the Bank of England (BoE) struggles to get a grip on sticky inflation.
Under triple lock rules, the state pension rise for the year ahead is determined by figures published in September of the previous year. The BoE predicts inflation will drop to 7% by September, the point when the state pension rise for 2024/25 will be locked in for the next year.
If the BoE’s forecasts prove to be on the money, the full state pension will rise from £10,600 a year to £11,342 a year in April 2024.
Alice Guy, head of pensions and savings at the investment platform Interactive Investor, said “pensioners will enjoy another bumper state pension hike due to inflation proving a much tougher nut to crack than the Bank of England hoped”.
She added: “The state pension forms the backbone of most people’s pension income and a rise in the state pension will be a lifeline to many people on the breadline.”
With this year’s rise and next year’s expected rise added together, it means the state pension could surge by 17.8% over just two years, according to Interactive Investor.
State pension predictions
Of course, forecasts and predictions are often wrong, but it’s likely inflation will still be fairly high come September, even if the exact reading isn’t 7%.
If it is higher, at 8%, the annual state pension increase will be £848, giving a new full state pension of £11,448 a year.
A 6% inflation figure in September would result in a £636 hike, while a 5% inflation reading would give a £530 boost.
Damon Hopkins, head of DC workplace savings at the consultancy Broadstone, said: “Having benefitted from around a £1,000 increase to their state pension in April, another substantial triple-lock hike will further embed its importance to the retirement income of millions of pensioners – present and future.
“Given the delicate state of the government’s finances, it will raise further questions around the viability of the triple lock. That said, it would take a brave prime minister to break a key manifesto pledge for the second time in three years so close to a General Election.”
Last year the triple lock was suspended for a year to avoid the government having to hike payments by 8%, as wages rose quickly as the country emerged from the pandemic. Instead, a double lock was in place, meaning the state pension increased by 2.5% or inflation. As such, it increased in line with inflation, which was 3.1%.
The triple-lock debate
The triple-lock protection means the state pension is rising at a much faster rate than average wages, which increased by 6.5% on average in the year up to April 2023.
The divide between soaring pension payouts and workers’ salaries - exacerbated by a cost of living crisis - means the debate continues around whether the government should continue to fund the expensive triple lock mechanism.
However, while pensioners are sometimes viewed as wealthy individuals, Guy says this is a myth and stresses that many older people rely on the state pension as their main source of income.
She commented: “Many poorer pensioners are facing real hardship as they spend a big proportion of their household income on increasingly expensive necessities like food and energy.
“Pensioners are one of the most vulnerable groups to rising prices as they have limited options to boost their income.”
She added that nearly one in four (23%) of people aged over 65 do not own their own home, and a further 6% are still paying off a mortgage, according to research by Interactive Investor. “Many of these older people face mounting rental and mortgage costs as inflation and rising interest rates take effect.”
It’s also worth mentioning that not all pensioners receive the full state pension of £10,600 a year (£203.85 a week). Some will not have enough National Insurance contributions to claim the full amount.
