On Tuesday 18th October the September CPI annual increase was revealed to be 3.0%. The following day average weekly earnings figures emerged from National Statistics putting the annual growth at 2.2% including bonuses and 2.1% excluding bonuses. The “Triple Lock” for increases to the basic and new state pension is the greater of:
• CPI inflation;
• Earnings growth; and
CPI is thus the winner. As CPI increases apply anyway to both the basic state and new state pensions, the net result is that all state pensions should rise by 3.0% from April. Give or take some rounding that means:
• The new state pension (ie single tier) will rise from £159.55 a week to £164.35; and
• The old basic state pension (for those who reached their SPA before 6 April 2016) will rise from £122.30 to £126.00.
In its 2017 manifesto the Conservatives said that they would “maintain the Triple Lock until 2020, and when it expires … introduce a new Double Lock, meaning that pensions will rise in line with the earnings that pay for them, or in line with inflation – whichever is highest.” The 2020 date reflects the previous 2015 manifesto pledge to maintain the lock until what was expected to be the end date of that parliament. The validity of the 2020 break point is now uncertain given that the DUP, which supplies the Conservatives their working majority, said no change to the Triple Lock in their manifesto.
Although the Triple Lock appears to have cost nothing this time around, it is still having an indirect cost from those years when the 2.5% floor kicked in (2013 and 2017). In the long term, there is a growing consensus that the Triple Lock must be replaced by a less expensive increase mechanism. The only obstacle in the way is politics, although even that is starting to tilt with questions of intergenerational fairness coming to the fore.
The issue of young versus old is underlined by the forthcoming pension increases because most working age social security benefits are in the midst of a five-year freeze, and will not rise until 2020. When George Osborne announced that freeze in July 2015, inflation was virtually non-existent, so the measure looked much less punitive than it does now.
To add one further intergenerational twist to the picture, the 3% CPI implies a 3% rise in the standard lifetime allowance from April 2018 to £1.03m.
The failure of pay to keep pace with inflation remains one of the long-term effects of the great recession which continues to puzzle economists. Between April 2009 and April 2017, average weekly earnings increased by 15.3% and the CPI by 19.7%. The basic state pension, helped by the Triple Lock starting in 2011, added 28.4%.
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