The Autumn Budget will take place on 29 October, it was announced yesterday, but pensioners won’t have to wait another month to discover what kind of pay rise they’ll get on their state pension next year – as the amount it will increase by will be revealed on 17 October.
On that day, the Office for National Statistics (ONS) will announce the rate of inflation, measured by the consumer prices index (CPI), for the month of September, which will directly affect how much state pension you’ll get next year.
CPI measures the prices of roughly 700 everyday goods and services and records whether the prices rise or fall compared with the cost of those goods in the same month of the previous year.
The September CPI figure is closely watched as a number of benefits, including the state pension, are increased in line with it in order to keep up with the cost of living.
Find out how the state pension might be affected by the upcoming inflation figures.
Why does September’s inflation affect the state pension?
The current state pension is protected by something called a ‘triple lock’ guarantee. It applies to both the single-tier state pension, introduced after April 2016, and the basic state pension pre-April 2016.
This means that the state pension increases every year by whichever of the following three figures is the highest inflation, average earnings growth or 2.5%.
Inflation and earnings change all the time, so the government selects the rate from a particular month in the year to increase the state pension.
For inflation, it is the rate of change in CPI from the September of the year prior to the state pension being increased. So, for example, when the state pension was increased by 2.7% in April 2014, that was the rate of inflation in September 2013.
For earnings, it is the rate of change in the three-month average of weekly earnings from the July of the year prior to the state pension being increased.
This means that if September’s level inflation stays in line with August’s rate of 2.7%, the state pension will rise by that amount as it’s higher than July’s average earnings growth figiure of 2.6%.
The table shows what measure the state pension has increased by since the triple lock was introduced in 2010.
|Year the increase was applied||Consumer Prices Index||Average earnings||2.5%|
What parts of the state pension are increased by the triple lock?
The state pension has gone through some significant changes over the past few years.
Prior to April 2016, the state pension was made up of two amounts – the basic state pension and an additional state pension. If you qualified for it before April 2016, only the basic state pension you receive is increased by the triple lock.
If you get any additional state pension, that is increased by CPI alone. In April 2017, the additional state pension increased by 3%, in line with the basic state pension.
If you qualifed for the state pension after 6 April 2016, you’re eligible for the new single-tier state pension, which is currently £164.35. The triple lock applies to this figure, but if you anything you earn above £164.35 from any additional state pension you built up, it is only increased by CPI.
How much could my state pension be in 2019?
The table below shows the range of potential scenarios for inflation in September. The minimum pay rise you can expect is 2.5%. This means that:
- The basic state pension (currently £125.95) will be at least £129.10 a week, an extra £164 a year
- The new state pension (currently £164.35) will be at least £168.45 a week, an extra £213 a year.
The table shows the pay rises for a range of potential inflation rates which could be announced in just 20 days time.
|Basic state pension||£129.22||£129.35||£129.48||£129.60||£129.73||£129.85||£129.98||£130.11|
|New state pension||£168.62||£168.79||£168.95||£169.12||£169.28||£169.44||£169.61||£169.77|
Any increase will be applied in the 2019/20 tax year, which starts on 6 April 2019.
Find out more: how much state pension will you get?
Could the state pension triple lock be scrapped?
The Government’s Actuary Department estimates the triple lock has added £6bn a year to the cost of running the state pension compared to increasing payments by inflation alone.
According to a recent report from the Pensions Policy Institute (PPI), using alternative pension guarantees could help save on the cost of running the state pension. It suggested that, by 2050, using:
- An earnings link would save 0.5% per year
- A double lock would save 0.2% per year
- A triple lock for the basic state pension and a earnings link for the new state pension would save 0.5% per year
The PPI cautioned, however, that 700,000 more pensioners would be living in poverty by 2050 if the government did scrap the triple lock guarantee.
The Government Actuary’s Department has warned that the National Insurance fund, which pays out social benefits such as the state pension, will run out by 2035.
One of the proposals for maintaining the fund made by the Department is to scrap the triple lock. Although in Conservative Party proposed moving to a double lock of inflation or earnings after 2020 in last year’s snap general election, this idea was later abandoned.
Sir Steve Webb, director of policy at Royal London, and former pensions minister says: ‘The triple lock policy was introduced in 2010 after a thirty-year period in which the state pension only rose each year in line with inflation.
‘This meant that the pension had fallen to a relatively low percentage of the national average wage, leaving millions of pensioners needing to claim means-tested top-ups simply to get by. The triple lock was designed to give an upward ratchet to get the state pension up to a better level.
‘The Labour opposition is committed to keeping it going, whilst the Conservatives are now committed to keeping it for this Parliament because of pressure from the Democratic Unionist Party.
‘Eventually the triple lock will be broken because it does add substantially to the cost of the state pension, but hopefully by this point the state pension will have been restored to a more meaningful level.’
What is the state pension?
The state pension is a weekly payment from the government that you can receive once you reach state pension age.
In order to qualify for the state pension, you need to make National Insurance contributions. You’ll need to have a minimum of 35 qualifying years to get the full amount of new state pension and at least 10 years’ worth of contributions to get anything at all.
Workers who reached state pension age before the new state pension was introduced only need 30 years’ worth of National Insurance contributions to get the full basic state pension.
When can I claim the state pension?
You’ll be able to claim the state pension once you reach state pension age.
State pension ages for men and women are due to become exactly the same – 65 years old – by the beginning of November this year.
Women born between 6 November 1953 and 5 December 1953 will be the first group to have the same state pension age as men.
There will be another increase in the near future. The state pension age is due to rise to 66 by October 2020 and again to 67 by 2028.
The next increase to 68 is due to take place between 2037 and 2039.
Can I check my state pension?
Workers can use the government’s ‘Check your state pension’ available on GOV.UK or via the Personal Tax Account to get a state pension forecast.
Contacting the Future Pension Centre of the Department for Work and Pensions (DWP) can also provide further clarification about your state pension breakdown.
It’s also possible for you to request that the DWP does a manual check on your state pension entitlement, although this can take a couple of months to complete.