The state pension could rise by 8.5% in 2024 thanks to the triple lock policy.
However, Prime Minister Rishi Sunak has refused to commit to keeping the triple lock in the next manifesto, despite it being Conservative party pledge as the cost spirals. Work and pensions secretary Mel Stride has also said the triple lock is not sustainable long term.
Even Labour Party leader Keir Starmer has refused to commit to the policy.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Amid this confusion, there have been reports suggesting the government may use a lower figure to calculate the state pension’s increase in 2024.
The state pension increased by 10.1% in 2023, in line with inflation, a far above-average boost compared to previous years. The triple lock ensures the state pension goes up by average wage growth, inflation, or 2.5% – whichever is highest.
Inflation has fallen to 6.8%, meaning the state pension will likely go up in line with the 8.5% wage growth recorded in the three months to July.
But will the government really scrap the policy as its cost spirals?
Will the government keep the triple lock next year?
Inflation is expected to fall in the coming months, but average earnings growth is on an upward trend and could continue to grow as public sector pay deals are reflected in the figures.
In light of the rise in wages, there have been reports the government is considering using a different figure to calculate the increase to the state pension next year.
“Given the impact of one-off payments to NHS and Civil Service workers in swelling the figures, rumours are swirling that the government may opt to use a smaller number instead,” says Helen Morrissey, head of retirement analysis at Hargreaves Lansdown.
“For instance, stripping out the effect of bonuses could leave the increase at more like 7.8% rather than the current 8.5%.”
The cost of sticking with the triple lock would be “huge and unpredictable” says Steven Cameron, pensions director at Aegon, but by “twisting” the policy both parties “risk losing the support of swathes of older voters”.
The cost of the state pension is expected to outweigh combined spending on education, policing and defence over the next two years.
Rising cost of the state pension triple lock
According to the Institute for Financial Studies (IFS), increases to the state pension could cost the government up to £45bn per year by 2050.
The 8.5% rise in the full new state pension would take it to £11,500 per year – currently it stands at £10,600.
This increase would cost the government £2bn more than budgeted in 2024-2025, the IFS said.
Calculations from interactive investor II’s show the cost of the state pension triple lock could hit £10bn 2024 - based on the latest wage and inflation figures. This is £4bn higher than the DWP forecast in March.
“The DWP March forecast expected the total state pension cost to rise to £135 billion in the tax year beginning April 2024. But a bumper wage bill for employers has a knock-on impact on the state pension bill which could rise to a total cost of around £138 billion next year. The cost of the triple lock could hit over £10 billion next year, based on ii calculations. The final bill could be lower if inflation or wages fall during July,” says Alice Guy, head of pensions and savings at interactive investor.
The cost of the state pension triple lock is growing for the government as the population ages. “The current government and Labour party have both committed to the triple lock next year. But the cupboards are bare, with the tax burden at a record level. With an aging population, the triple lock promise is becoming increasingly expensive,” Guy adds.
Already the state pension age is predicted to rise to 68 by 2040.
Join us at the MoneyWeek Summit on 29.09.2023 at etc.venues St Paul's, London.
Tickets are on sale at www.moneyweeksummit.com
MoneyWeek subscribers receive a 25% discount.
-
-
Rightmove: property asking prices being cut at their fastest rate in over 10 years
The latest data from Rightmove showed over a third of properties for sale have had their price reduced as the property market continues to slow down, while data from Hamptons showed rents are rising at their fastest pace on record.
-
Pensions: 5 things to check when switching jobs
With most of us changing jobs at least 10 times during our careers, it’s easy to lose track of your pension pot. Here are five pension checks to make when moving jobs
-
Energy bills to fall 7% under new price cap
Energy bills could fall by an average 7% from October under the new Energy Price cap announced today. We explain what the new cap mean for you and when it will come into play
-
Bank of Baroda closes doors to UK retail banking
After almost 70 years of operating in the UK, one of India’s largest bank is shutting up shop in the UK retail banking market. We explain everything you need to know if you have savings or a current account with Bank of Baroda
-
The best options to earn cashback on spending
From credit cards and current accounts to cashback websites, there are plenty of ways to earn cashback on the money you spend.
-
Should you retire abroad?
Check the regulations governing pension savings carefully before you decide to retire abroad.
-
John Lewis mulls buy now, pay later scheme
The CEO of John Lewis has said the retailer will consider introducing buy now, pay later initiatives for lower-priced items.
-
Paragon raises rate on one-year fixed cash ISA to 5.75%
Paragon Bank ups its one-year fixed cash ISA rate to 5.75% - is it enough to top the table?
-
Shawbrook ups rate again on easy access saver products – how does it compare?
Shawbrook bank has hiked the rates on its easy access saver and ISA again – but does it compete with other rates on the market?
-
Lessons from the £11m pension saver ‒ how to build a better pension
As an FOI reveals the UK’s most successful pension saver has built an £11m pot for their retirement, we outline the tactics you need to follow to build your own retirement warchest.
