Pensioner incomes have been savaged by the cost of living crisis, as essentials such as food and fuel skyrocket. Rishi Sunak made a bad situation worse when Chancellor, by suspending the triple lock for the 2022/23 financial year.
This gave 12million pensioners a pay rise of 3.1 percent just as inflation hit double digits.
It triggered fury among many retirees, who felt betrayed by a government many had voted for.
With the triple lock restored the state pension rose by 10.1 percent in April this year, offering some relief and showing just how valuable the mechanism is.
The triple lock increases the state pension each year either by earnings, inflation or 2.5 percent, whichever is highest.
Unsurprisingly, this year’s increase was based on inflation, using the September 2022 figure.
With inflation stuck at 8.7 percent in May, most people assumed the inflation element of the triple lock would apply next year, too.
Now there’s a twist.
Alice Guy, head of pensions and savings at Interactive Investor, has pointed out that inflation isn’t the only thing that’s “stubbornly high” today.
Wages are soaring too, as today’s low unemployment rates and staff shortages give workers more bargaining power. Earnings could end up being the highest of the three triple lock elements and that’s good news.
Wages grew by 7.3 per cent for the three-month period from March to May. The three-month period from May to July is used for triple lock purposes.
If wage growth stays at the same level it could top September’s inflation figure, which the Bank of England reckons will fall to seven percent.
In that scenario, the earnings element will apply. Guy says. “A figure of 7.3 percent would boost the full new state pension from £10,600 this financial year to £11,373 next year.
“That’s a pay rise of up to £773 a year, which won’t make full amends for the today’s cost-of-living agonies but is certainly better than nothing.”
Better still, inflation is expected to fall below five percent in 2024, so a state pension increase of 7.3 percent next April would be well ahead of inflation at the time.
Guy points out that both of the main parties are committed to the triple lock next year. “That means all eyes will be on average wage figures for the next few months.”
READ MORE: Bank of England adviser warns triple lock ‘can’t last much longer’
Around four in 10 pensioners are surviving on the state pension alone so it will be a huge relief if the state pension does increase by almost £800, she added.
Yet even a 7.3 percent rise won’t be enough for poorer pensioners who spend more of their disposable income on essentials like food and energy.
Those who retired before April 6, 2016, on the basic state pension will get the same percentage increase, but it will be worth less in pounds and pence. “The basic state pension is only £8,122, potentially increasing to £8,714 next April,” Guy notes. This is an issue I have repeatedly highlighted.
Guy is urging pensioners struggling on a low incomes to check if they qualify for pension credit or any other state benefits.
Pension credit works by boosting a single person’s income to £201.05 a week or £306.85 for couples. “Claiming also means you could be eligible for other valuable help like a reduction in council tax, cost-of-living payments and housing benefit.”
The triple lock isn’t perfect, but Guy’s calculations show that life would be so much harder for pensioners without it.
If the state pension does rise by 7.3 percent and inflation continues to decline in 2024 as expected, next April’s increase could be a real inflation buster.
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