David Brooks, Head of Policy at Broadstone, said: "Today’s inflation figures confirm wage growth as the driver of next year’s State Pension increase. The Triple Lock will once again come under scrutiny with a 4.8% rise in the State Pension raising serious questions about fairness and sustainability. While wage growth is a more defensible measure than inflation or the arbitrary 2.5% floor, the triple lock mechanism still lacks coherence. It guarantees pension increases even when economic conditions don’t justify them, and risks entrenching intergenerational inequality. A system that links pensions to earnings - or even broader economic growth - would be more equitable and better aligned with the realities facing working households, ensuring that generations are dealing with the current economic pressures together. We need a more balanced and targeted approach to pension policy – one that supports those in genuine need without placing unsustainable burdens on the public purse or younger generations. Reforming the triple lock should be part of that conversation. Many of those with index-linked Defined Benefit pensions will see their annual income uprated in line with this inflation figure, delivering another boost to their retirement finances. However, this will reignite debate on those retirees who are receiving pensions from schemes that don’t increase benefits for service before April 1997. This will remain a controversial topic and while members are receiving benefits as set out by the scheme, it is easy to have sympathy for those impacted where this causes hardship."
George Brown, Senior Economist at Schroders, said: "Inflation near 4% should serve as a wake-up call for markets, which continue to price in two more rate cuts next year. High inflation is at risk of becoming entrenched in the UK, due to a combination of disappointing productivity and sticky wage growth. We expect the Bank of England will keep interest rates on hold until the end of 2026 and we wouldn’t rule out its next rate move being upward. Public borrowing figures suggest the Exchequer is experiencing the fiscal downside of this higher inflation – through increased government spending - without being equally compensated by higher revenues. Rather than simply restoring the £10 billion of fiscal headroom through a net tightening of around £25 billion, the Chancellor should consider going further. Building a bigger buffer would reduce the risk of needing to further course correct if growth and spending diverges again from the OBR’s forecast."
Steven Cameron, Pensions Director at Aegon, comments: “Today’s inflation figure of 3.8%, unchanged since last month, is the final piece in the state pension triple lock jigsaw. The triple lock formula increases state pensions each year by the highest of price inflation (now confirmed as 3.8%), earnings growth (4.8%), or a minimum of 2.5%. This means next April’s increase should be 4.8%, in line with earnings growth. This should be good news for pensioners, representing an increase of 1.0% above inflation, providing a welcome boost to pensioner purchasing power from next April. However, while the Labour Government did commit to retain the triple lock, we do still need to wait for formal confirmation of the increase by the Secretary of State for Work and Pensions. We’re fast approaching the Autumn Budget, with the Chancellor already signalling difficult decisions ahead. The Chancellor has continually emphasised she wants to support ‘working people’. And as the state pension is ‘pay as you go’ rather than funded, it’s today’s workers through taxes and National Insurance who pay for today’s state pensions. Every 1% increase in the state pension costs around £1.1bn a year for all future years. While today’s pensioners are yesterday’s working people, if the Government decides to prioritise support for those currently working, could that mean a scaled back triple lock from next April?”
Simeon Willis, Chief Investment Officer at XPS Group said: “Prices were steady over September this year and as a result the inflation rate for the 12 months has remained stable at 3.8%. This contrasts with the marked fall in 10-year inflation expectations so far over October. The 12-month inflation print remaining flat on last month is a good sign that near term inflation may be on the turn. Longer term expectations which are driven by gilt supply and demand from long term investors, indicate that long-term inflation protection appears to be falling out of favour - another good sign. Defined benefit pension scheme funding will generally have been positively impacted by the recent fall in inflation expectations.”
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