Steven Cameron, Pensions Director at Aegon, said: “Today’s official inflation figure of 4.6%% from the Office for National Statistics shows the Government has delivered on its promise to halve inflation from its 10.7% starting point by the year end.
“It comes a day after figures show total earnings continue to increase at a rate of 7.9%. While this ‘real’ earnings growth of over 3% is good news for those of working age receiving average pay increases, it piles pressure on the Government as it weighs whether or not to honour the triple lock in full next April, with an announcement possibly made as part of the Chancellor’s Autumn Statement.
“The official formula would grant an 8.5% increase, based on year-on-year earnings growth for the May to July period. This is further above inflation than we’ve seen in recent months. With rumours of the Chancellor having more fiscal headroom than anticipated, the Government may decide to grant the full 8.5%, providing another bumper increase after this April’s highest ever 10.1%. But this is paid for out of the National Insurance of today’s workers and raises real questions around intergenerational fairness.
“There have been reports that the Government is considering adjusting the earnings growth figure downwards to take out the impact of recent one-off public sector bonuses which have created a ‘distortion’. While trimming it back to say 7.8% would save the Government hundreds of millions, it risks the wrath of the pensioner population ahead of an almost certain General Election next year.
“An 8.5% increase would see the New State Pension jump by a bumper £901.02 to £11,501.22 a year. The ‘old’ State Pension, for those who reached State Pension age before 6 April 2016, would also rise by £690.40 to £8,812.80.
“With the Government already having more than met its target of cutting inflation by half by the end of the year, the current 4.6% remains significantly above the Bank of England’s 2% target, so the headline rate may fall even further as we head into the early months of 2024. This means there’s a real chance that a State Pension increase of 8.5% could be more than double the ruling rate of inflation come next April. That’s unsustainable.
“Whatever the decision for next April, volatile price inflation and earnings growth add to growing concerns that the Triple Lock in its current form is unsustainable longer term. Prior to the General Election, we’re calling on the main parties to make clear their proposals to make it sustainable, reliable, and intergenerationally fair.”
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