Chancellor Jeremy Hunt has confirmed that the State Pension will rise in line with September’s CPI inflation rate of 10.1%.
He confirmed in his Autumn Statement that the Government is sticking to its Triple Lock pledge.
The decision ends speculation he would drop the pledge or water it down.
While figures are yet to be confirmed, wealth manager Quilter recently forecast that if the Triple Lock was honoured the State Pension would rise to £203.85 from April (currently £185.15) and potentially £220 by 2024. The basic state pension would also be increased to £156.20 a week next year from its current level of £141.85.
The Triple Lock refers to a 2019 Conservative Party manifesto pledge that the State Pension would rise in line with the highest of: the previous September’s inflation figure, the average wage increase, or 2.5%.
Tom Selby, head of retirement policy at AJ Bell, said the Autumn Statement brought to an end the uncertainty over whether or not the State Pension Triple Lock will be honoured next year.
He said: “While former Prime Minister Liz Truss committed to the Triple Lock during her final PMQs appearance, the current PM and Chancellor have been unwilling to do so. This is perhaps understandable given an inflation-linked increase could cost in the region of £5 billion more than an earnings-linked rise.
“However, failing to honour the triple-lock for a second consecutive year would be a huge risk given where the Conservative Party finds itself in the polls.”
Steven Cameron, pensions director at Aegon, said there remained a question mark over whether the Triple Lock will be retained longer term.
He said: “Today’s confirmation of honouring the Triple Lock for 2023/24 means pensioners can breathe a huge sigh of relief after a white knuckle roller coaster ride of past disappointments, new promises and a series of U-turns. But next year’s increase could be its ‘last gasp’ as the current formula is looking increasingly unsustainable.
“Financially, it won’t have been an easy decision for the government looking to fill a £50bn fiscal black hole – every 1% increase in the state pension costs around £0.9bn a year. And this isn’t paid for out of some fund built up in the past but from the National Insurance paid for by today’s workers.
“Honouring this Manifesto commitment after ditching it last time round will provide much needed support for pensioners, many of whom are on low and fixed incomes and particularly vulnerable to rampant inflation. The government will no doubt have weighed up the reaction of pensioner voters if they scrapped the Triple Lock for a second consecutive year in the run-up to the next general election.
“But there’s a huge question mark over whether any party would recommit, in a future Election Manifesto, to paying the highest of price inflation, earnings growth or 2.5% year on year. In volatile times, using an average over 3 years or even paying out the average of inflation and earnings increases each year might be more sustainable for Government and predictable for pensioners.
“The outcome of the review of State Pension age is also to be published early in 2023 and on affordability grounds, this needs to be considered alongside the future of the triple lock.”
Jon Greer, head of retirement policy at Quilter, agreed that the Triple Lock may still be abolished in the near future.
He said: “While the government has confirmed the Triple Lock has been reinstated for now, there is still a chance we could come across the same issue next year. The Bank of England has predicted inflation may drop to 7.9% by Q3 next year, so keeping the Triple Lock in place may prove less expensive from 2024. However, given the turbulence in government decision making we have seen in recent times, we know there are no real guarantees that the Triple Lock will go untouched for a second year.”
Some industry commentators had predicted that pension tax relief could be an easy target for the Chancellor.
Les Cameron, head of technical at M&G Wealth, said: “It looks like it’s been yet another reprieve for pension tax relief. With the frozen tax bands, we will see more people moving up through the tax bands with the Centre for Economics and Business Research predicting an additional three million workers falling into higher income tax bands due to the income tax freezes.
“Ironically, this means more people are able to access more tax relief. Will we see those in the £125,140 to £150,00 zone defer their contributions until they become additional rate taxpayers?”
