Inflation has taken a tumble hitting 1.7% in the 12 months to September.
This is good news for the battered budgets of people who have struggled with soaring costs in recent years. It’s also the final piece in this year’s State Pension triple lock puzzle.
The triple lock raises the State Pension each April by whichever is highest of 2.5%, average earnings growth and CPI inflation, with September’s inflation figure being the one to watch.
What does the latest inflation figure mean for the State Pension?
As expected, it undershot average earnings growth, putting pensioners on track for a 4.1% increase next April.
This means someone on the full new State Pension will see their payments increase from £221.20 to £230.30 per week.
Those on the full basic State Pension will see their weekly payments rise from £169.50 to £176.45.
This hasn’t been confirmed by government yet, but could be announced in the upcoming Autumn Budget.
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Is the State Pension increase enough for pensioners?
There’s a fly in the ointment in that these increases will be largely eaten up by the recent restriction of the winter fuel payment to those on means-tested benefits, like pension credit. It’s a hole of up to £300 that many pensioners will miss as we head into the colder months.
There’s also another looming challenge.
The State Pension is increasing, but tax thresholds aren’t – they’ve been frozen for years and are set to stay that way until at least 2028.
Next year’s projected rise is expected to bring the full new State Pension to a whisker under £12,000. That means there’s a very real prospect it will breach the £12,570 threshold for paying basic-rate tax in the next few years.
The age at which you can claim the State Pension, and how much you’ll get, is different for everyone. Download our guide to fund out:
When you can claim the State Pension
How much income you might get
What happens if you were contracted out
Ways to boost your State Pension income
Plus much more
What could be next for the State Pension?
After several years of blockbusting increases, the government will draw a sigh of relief that this increase is more manageable. However, the debate will still rage as to how to manage the costs of State Pension in the long term.
The usual levers of increasing State Pension age risk running out of steam as longevity slows, so this tricky issue should be front and centre of the ongoing pension review.
State Pension forms the foundation of our retirement income and people need certainty as to what they’re going to get and when.
The review is the ideal opportunity to assess the State Pension and the triple lock’s role within it to give people the clarity they need.
This article isn’t personal advice. If you’re not sure what’s right for you, ask for financial advice. Remember, pension and tax rules can change, and any benefits depend on individual circumstances. You also can’t access money in a pension until age 55 (rising to 57 in 2028).
Will you need more than the State Pension?
While the State Pension is the backbone of people’s retirement income, it’s important you supplement it with your own retirement savings. This could be through a workplace pension or a private pension like a Self-Invested Personal Pension (SIPP).
The latest data from HL’s Savings and Resilience Barometer shows only 38% of households are on track for a moderate retirement income. So, clearly there’s still more to do.
Small actions like upping your pension contributions when you get a pay rise or new job is one way to boost your contributions.
You should also make sure you’re making the most of any contributions your employer is making.