State Pensioners set for bumper 4% inflation busting increase

Senior woman calculating finances in her kitchen
  • Under ‘triple lock’, the State Pension increases by highest of earnings growth, price inflation or 2.5% a year
  • The April 2020 increase is due to be announced next month once September price inflation is confirmed,
  • But earnings growth used is year to July, already confirmed as 4%, far higher than the 1.7% inflation increase to August

Next month, those receiving the State Pension are likely to find out that their weekly payments will increase by 4% from April 2020. This means the full new State Pension will see an increase from £168.60p/w to £175.35p/w and the full old basic State Pension will see a rise from £129.20p/w to £134.35p/w.

Under current rules, the State Pension is increased by the ‘triple lock’ which is the highest of earnings growth, price inflation or 2.5% a year. The price inflation figure used is for the year to September, which will be announced in mid-October, following a fall in the August figure to 1.7%, down from 2.1% the previous month*. But the earnings growth figure used is that to July (seasonally adjusted and including bonuses), which was 4%**. This means pensioners are on track to receive a 4% increase, far above the rate of increases we’re currently seeing with prices.

The triple lock was announced back in 2010 as a way of making sure pensioners didn’t lag behind the working age population in terms of their State Pension purchasing power. It was first used to increase State Pensions in April 2011 and since then, state pensioners have done well from the triple lock with overall increases outstripping both price inflation and earnings growth.

A single person receiving the old basic State Pension which was £97.65 back in April 2010 is now receiving £129.20, an increase of 32% while prices have increased by 24% and average earnings by only 20%.

The table below shows how the triple lock has worked since its introduction.

Triple Lock in action.JPG

Table: Aegon analysis of the annual State Pension uprating^

This pensioner boost does come at a significant cost with the current Government committing to continue the triple lock only until 2022***.

Steven Cameron, Pensions Director at Aegon said:

“Based on the latest earnings growth figures, it looks like state pensioners can look forward to an inflation busting 4% increase in their state pension from next April. Under a special arrangement called the ‘triple lock’, the current Government has committed until 2022 to increase state pensions each April by the highest of earnings growth, price inflation or 2.5%. The price inflation figure used is that for September, and won’t be announced until later in October, but the latest figure for August was down at 1.7%. The earnings growth figure used is that for the year to July, and has already been announced at 4%. So subject to any last minute adjustments, pensioners look like they’ll see a 4% increase from next April.

“Those who reached state pension age on or after 6 April 2016 will be receiving the single state pension, and if entitled to the full amount, a 4% increase would see their state pension go from £168.60 to £175.35 per week. For those who reached state pension before then and are entitled to the full basic state pension, a 4% increase on their current £129.20 per week would mean £134.35 from next April.

“This will be welcome news for current state pensioners. However, these inflation busting increases do come at a significant cost. The state pension is not funded in advance so pensions are funded on a ‘pay as you go’ basis from today’s workers’ National Insurance contributions. With the prospect of an early General Election, it will be interesting to see where each party stands on commitments to retaining the triple lock for the next 5 years.”

 

References:

*CPI Annual Rate: https://www.ons.gov.uk/economy/inflationandpriceindices/timeseries/d7g7/mm23

**LMSB SA AWE total pay WE growth yr on yr 3 months average:

https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/earningsandworkinghours/timeseries/kac3/lms

**Figures from the Office for Budget responsibility show that without the triple lock, or under just earnings indexation, spending is projected to increase by £21 billion between 2020/21 and 2060/61. Under the triple lock, the increase is projected to be £35 billion in today’s terms for the same period. These figures assume the government raises the state pension age for men and women to 68 by 2041 and 69 by 2055.

^Benefit Uprating briefing papers 2011-2019 including the relevant factors for uprating:

2019 Benefits Uprating

2018 Benefits Uprating

2017 Benefits Uprating

2016 Benefits Uprating

2015 Benefits Uprating

2014 Benefits Uprating

2013 Benefits Uprating

2012 Benefits Uprating

2011 Benefits Uprating

 

Further information

Before the introduction of the Single State Pension, employees were eligible for both the Basic State Pension and an earnings related pension. We have not included any figures for the earnings related element, which varies by individual.

Individuals are eligible for the full basic State Pension if:

  • They are male born before 6 April 1951
  • They are female born before 6 April 1953
  • They have a total of 30 qualifying years of National Insurance contributions or credits.

Individuals are eligible for the full new State Pension if:

  • They are male born on or after 6 April 1951
  • They are female born on or after 6 April 1953
  • They have a total of 35 qualifying years of National Insurance contributions or credits.

 

Notes to Editors

As with all investments, the value can fall as well as rise and isn’t guaranteed. Customers could get back less than originally invested.

  • In the UK, Aegon offers retirement, workplace savings and protection solutions to over three million customers. Aegon employs around 2000 people in the UK and together with a further 800 people employed by Atos, we serve the needs of our customers. More information: aegon.co.uk
  • As an international life insurance, pensions and asset management group based in The Hague, Aegon has businesses in over twenty five markets in the Americas, Europe and Asia. Aegon companies employ over 28,000 people and have millions of customers across the globe. Further information: aegon.com

*Figures correct as of August 2019