Retirees could see their state pension boosted by a whopping 10.1% in 2023/24 but only if newly appointed chancellor Jeremy Hunt doesn’t ditch the triple lock.
The increase would be in line with September’s Consumer Prices Index (CPI) inflation figure of 10.1%, which is usually used for benefits uprating.
Under triple lock rules, state pensions increase every year according to inflation, earnings or 2.5% whichever is highest. Wage growth figures for May-to-July 2022 came in at 5.5%, which means that the earnings component of the triple lock is 5.5%.
Increasing the state pension by inflation rather than average earnings would cost the chancellor an estimated £4bn-£5bn ($5.63bn, €5.74bn), according to AJ Bell.
If the triple-lock is retained and the state pension is uprated by 10.1% next year:
- The full flat-rate state pension, paid to those reaching state pension age from 6 April 2016, will increase to £203.85 per week from £185.15 per week (£10,600.20 per year) from April next year; and
- The basic state pension, paid to those who reached state pension age before 6 April 2016, will increase to £156.20 per week from £141.85 per week (£8,122.40 per year).
However, if earnings growth for the three months to July (5.5%) is used instead:
- The full-flat rate state pension would rise to £195.35 per week – £8.50 per week (or £442 per year) less than a 10.1% inflation-linked increase; and
- The basic state pension would rise to £149.65 per week – £6.55 per week (or £340.60 per year) less than a 10.1% inflation-linked increase.
Tom Selby, head of retirement policy at AJ Bell, said: “Pensioners could receive a blockbuster 10.1% increase to their state pension next year if today’s CPI inflation figure is used to uprate benefits in 2023-24.
“That would be a hugely welcome retirement income boost for millions of older people at a time when living costs are surging.”
But Selby said that the difference in the decision to use a triple or double lock will be “massive”.
He added: “Someone receiving the full flat-rate state pension would receive £8.50 per week less, or £442 over the course of the year, if average earnings rather than inflation is used to uprate their benefits.
“For those struggling to make ends meet, that amount of money could make a real difference to their quality of life, particularly over the winter months.”
The Conservative government has been adamant that the pension triple lock will stay.
But media reports on 18 October 2022 said that the Conservatives were tempted to ditch the triple lock this year.
David Denton, technical consultant at Quilter Cheviot, said: “It has become almost impossible to predict the direction of travel of government policy, which means it is very difficult for pensioners to plan with any kind of certainty.
“Former chancellor, Rishi Sunak, had backed keeping the triple lock in place and during her leadership bid, Liz Truss also gave the impression that the State Pension triple lock will remain in place. The policy has now been thrown up in air again after Jeremy Hunt appeared indecisive on the matter.”
Andrew Tully, technical director at Canada Life, added: “A potential record-breaking increase to state pensions might well place the triple-lock in jeopardy as the new chancellor, Jeremy Hunt, faces a monumental task in trying to balance the books.
“If the triple-lock is ditched for a second year in a row, this flip-flop on policy effectively breaks the promise, and the government will need to find a way to try and appease a core part of the voting electorate.
“Whichever way the government goes, the state pension is not hugely generous, and many people will want to make sure they have private provision to top up the state pension by taking advantage of contributions offered through an employer’s automatic enrolment pension scheme.”