Steven Cameron, Pensions Director at Aegon comments: “In the first full month’s figures since lockdown measures were imposed in the UK, consumer price inflation fell to 0.8% in April, from 1.5% in March*. Today’s figures were not unexpected, but all eyes will be on the continuing trend as the impact of the coronavirus tightens its squeeze on the economy. The reality of lockdown is that many of the products and services that make up the basket of goods used to calculate inflation can’t be accessed or demand has fallen to near zero, meaning changes to the way inflation is calculated may be needed if the situation persists for any length of time.
“The inflation figure comes a day after Labour Market Statistics showed that the average earnings for the 3 months to the end of March dropped to 2.4% from 3.9% only 9 months ago**.
“Taken together, these figures are likely to increase pressure to review the ‘triple lock’ increases to the state pension. Under current rules, the state pension is increased by the highest of earnings growth, price inflation or 2.5% a year. However with likely dramatic changes and significant variability in both price inflation and earnings growth in the coming months, there is a question over whether the Government will see it as both fair and affordable to guarantee state pension increases of at least 2.5% a year.
“While the coronavirus crisis is raising major challenges for the UK’s finances, we are urging the Government not to rush into any decisions on state pension increases just yet but instead to consider a package of borrowing, benefit and taxation measures which must be fair across generations and sectors of society.”
* https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/april2020
** https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/bulletins/uklabourmarket/may2020
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