Ahead of next week’s (18 October) inflation announcement, Aegon recommends the use of more timely data under a revised Triple Lock guarantee to avoid distortions in the increases, and urges major political parties to commit to an improved system in their manifestos ahead of the looming general election.
Steven Cameron, Pensions Director at Aegon, said: “On 18 October, the ONS will publish the inflation figure for September, giving us confirmation of how next year’s State Pension Triple Lock increase will be calculated.
“The Triple Lock is a highly valued benefit to pensioners but comes at a high cost to those of working age who pay for it through their National Insurance, with spiralling costs raising issues of intergeneration fairness and much debate around its long-term sustainability.
“When both the rates of earnings growth and inflation are particularly high and volatile, as they currently are, setting the Triple Lock based on September’s year-to-date inflation figure and year-on-year earnings growth for May to July leaves huge scope for the resulting increase to be out of sync with conditions by the time they are implemented the following April.
“Increases need to be confirmed early enough to adjust systems and to give pensioners advance notice, as the state pension is a key component of many people’s later life income. But in today’s digital age, it should be possible to use data closer to the date of actual increase in April. Doing so would avoid state pensioners receiving increases which are either far above or far below the most recent rates of inflation, or which bear little resemblance to the ruling increases in average earnings.
“We recommend that all political parties set out their future plans for the Triple Lock in their manifestos, with the dates for setting the inflation and earnings growth elements reviewed as part of this.
“The Triple Lock is determined by whichever is highest of earnings growth for May to July, currently sitting at 8.5%, the inflation rate for September or a minimum rate of 2.5%.
“Given that inflation for August was 6.7% and has decreased for three consecutive months, it’s likely that September’s figure will fall short of the 8.5% rate of earnings growth and above the 2.5% minimum. This means the triple lock will be based on 8.5% earnings, delivering the second-largest State Pension increase since the Triple Lock system was introduced in 2011 and would see the new State Pension jump by £901.02 to £11,501.22 for 2024/25.
“With the Government committed to further driving down inflation, against a target of 2%, it’s quite conceivable that inflation next April could be below 5%. So an 8.5% increase could grant state pensioners a boost that is around double the rate of inflation, fuelling the intergenerational fairness debate.”
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