New state pension could rise by more than £650 a year next April under Triple Lock promise | Personal Finance | Finance
Finance experts predict the New State Pension will rise by more than £650 a year from next April taking it to more than £12,000.
The figure is based on the Triple Lock promise that the state pension should rise in line with the highest figure looking at three measures – the CPI measure of inflation, a figure of 2.5 percent or wages growth.
In recent years, surging CPI inflation, largely caused by Russia‘s invasion of Ukraine and its impact on energy, fuel and food prices, has set the benchmark for pension increases.
This delivered an increase in pensions of 10.1 percent in April 2022, which was followed by another big increase of 8.5 percent in April this year.
However, the increase from April next year is likely to be significantly lower with experts suggesting a rise of around 5.7 percent.
News from the Office for National Statistics (ONS) this week that the CPI measure of inflation is running at 2.3 percent suggests this will not be used to set the benchmark for raising pensions next year.
The second element of the Triple Lock – an uprating of 2.5 percent – will also be ruled out as setting the benchmark for any increase.
This coming year, industry experts suggest that average wage growth, which is currently running at 5.7 percent, will now be used to decide increases in the state pension.
Based on this assumption, the payments from the New State pension would rise from £884.80 to £935.20 for every period of four weeks. With 13 four week periods in the year, that means the annual figure will rise by £655 taking it up from £11,502 to £12,157.
The monthly figure for the Basic State Pension would rise from £678 per month to £713.60. That means the annual figure will rise by £432 taking it up from £8,814 to £9,276.80 for 2024-25.
Steven Cameron, Pensions Director at Aegon, said: “In April 2023, a spike in inflation the previous year led to a record-breaking 10.1 percent boost to the State Pension.
“For the April 2024 increase, earnings growth in 2023 produced an inflation-busting 8.5 per cent increase.
“These increases and the underlying high volatility that was present in both price inflation and earnings growth, have since raised serious questions over longer term affordability of the State Pension, which is paid for by today’s workers through National Insurance Contributions.
“With inflation having now fallen below the 2.5 per cent underpin, it’s likely to be earnings growth that determines next year’s Triple Lock increase, as the latest figures have this sitting at 5.7 percent (for January to March 2024).
“The specific figure used for determining the Triple Lock will be the year-on-year increase in earnings for the period ending May to July 2024, which will be published in September.
“Barring a significant drop in earnings growth over the next few months, this figure will likely determine next year’s Triple Lock.”
Looking ahead, he suggested the big pension rises seen in the last two years will not be repeated.
“If price inflation stays low and earnings growth also gradually falls back to levels more typical of the last decade, then the State Pension Triple Lock formula may produce more predictable and affordable increases,” he said.
“This will make it less costly for the next Government to commit to maintain it for a further five years. We may see lower rates of increases, but in times of lower inflation, the State Pension doesn’t need to increase by as much to allow pensioners to maintain living standards.
“However, rather than a three-way comparison year on year, we’d recommend averaging the earnings component over a three-year period, which could smooth out excessive volatility and help ensure intergenerational fairness.”
