Becky O’Connor, Director of Public Affairs at PensionBee, commented: “It’s good news that price inflation is heading down, but with wages rising, pressure remains on the Bank of England to keep interest rates higher. There’s still a way to go before we are out of the woods.
“As inflation subsides and incomes generally rise, some households may feel like they have some disposable income again, particularly as a result of the fall in gas and electricity prices. This boost for some could mean an opportunity to build up more savings again - ideally with higher rates of interest as a reward.
“But there is little respite for those facing big hikes in mortgage repayments. With borrowing costs for thousands of households up by hundreds of pounds each month, a decline in price inflation will do little more than take the edge off. These households will find it harder to build up long term savings while their mortgage rates remain high.
State pension implications
“For pensioners, it now looks likely that the state pension could rise in line with earnings rather than inflation next April, as the triple lock dictates that it increases with whichever is the highest of earnings, inflation or 2.5%. As scrutiny increases on the cost of the state pension to the public purse, the Government will be under pressure to break or at least adjust the triple lock.
The Government broke the triple lock in the wake of the pandemic when earnings growth soared above 8% that year, so there is precedent for a change on the basis of data that seems too high. However breaking a promise on pensioner incomes now would be enormously unpopular. The state pension is a vital part of retirement income and removing guarantees now could worsen the outlook for today’s workers when they come to retire.
Pension saving implications
“Lower inflation is good news for savers trying to grow and preserve the value of their pension pots. Higher prices have been quickly eroding the value of people’s life savings and making it harder to retire for many, as what they had built up suddenly doesn’t seem like it will be enough to last through retirement. Greater price stability will be particularly welcomed by those planning retirement, who may feel more secure about their future retirement income, in a more stable economic environment.”
Steven Cameron, Pensions Director at Aegon: “With earnings growth rising and the headline rate of inflation falling, the stakes are high for next year’s state pension triple lock. If earnings growth next month stays at the latest figure of 8.2%, state pensioners will be guaranteed this level of increase next April. This is now 1.3% above the latest inflation figure of 6.9% and if the Government achieves its plans, could be well above the ruling inflation rate when it comes into payment next April.
“But with so much volatility, the state pension triple lock has become quite the roller coaster, so it’s time to ‘hold onto your hats’ for a couple of months. The final earnings component will be announced next month and the final inflation figure in October. But after a double digit 10.1% increase in April 2023, state pensioners could be in for an inflation busting boost in April 2024.”
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