In response to a question from Ian Blackford during Prime Minister’s question time on Wednesday 18 October, Liz Truss confirmed that she was “completely committed to the Triple Lock” applying to the State Pension from next April. The statement came after many ministers, including the Chancellor, Jeremy Hunt, had avoided any promise on the level of increases, with much speculation that the rise would be limited to the growth in earnings (5.5% to July).
Triple Lock and State Pensions
The “Triple Lock” for increases to the basic and new state pension is the greater of:
- Consumer Price Index (CPI) inflation;
- Earnings growth; and
It won’t come as any surprise that the winner this year is the CPI and the fact that the Government has pledged to honour the promise to stick with the Triple Lock for at least this parliament should be welcomed.
Cynics may note that it is long time until next April 2023 and the Prime Minister has a track record of changing her policies. However, assuming that there is no U-turn on this occasion the new rates will be based on 10.1% CPI inflation to September 2022. The new State Pension will increase from April 2023 from £185.15 by 10.1% to £203.85. The basic State Pension, which came into payment for those reaching State Pension Age before 6 April 2016, will increase from £141.85 to £156.20:
|2022/23 £ per week
|2023/24 £ per week
|New State Pension
|Old State Pension
This will be a significant increase for those who are relying on the State Pension as their main source of income. Last year’s increase was only 3.1%, because the Triple Lock was rolled back to only a Double Lock discounting earnings growth.
One of the significant issues with the increase is that it only comes into payment in April 2023, over five months after the calculation dates. This can work either in the individual’s favour or against them depending on what happens in the next few months. In any case, pensioners have been dealing with increasing costs for many months now and so, even if inflation drops dramatically, it isn’t likely to mean that those impacted are any better off in the long run. The only solace is that, because of the Triple Lock, over recent years we have seen at or above inflation increases meaning that the starting point for this year’s rise could have been significantly lower.
Note that the statement only related to the Triple Lock, which applies to the new and old State Pensions. In theory other State Pension benefits will also rise in line with the CPI. In practice we may have to wait until 31 October for confirmation.
Other State Benefits
Other benefits would usually be increased by CPI. This includes working-age benefits, benefits to help with additional needs arising from disability, carers’ benefits, pensioner premiums in income-related benefits, Statutory Payments, and Additional State Pension. This hasn’t yet been confirmed and as with the Triple Lock, these increases are not written into legislation so we will have to await any announcements.
Those on benefits are likely to be the greatest hit by inflation and many are already struggling, so full inflation increases will be key to keep people afloat in these hard times. We again have the discrepancy in the timing with inflation hitting now, but the implementation not coming until April when many might find themselves in greater debt just to keep up with the basics.
Many defined benefit pension schemes, including those in the public sector, use the September CPI to uprate benefits. Again, this will not come into payment until April for those in receipt of benefits.
However, there are bigger issues for those who are still accruing benefits in defined benefit schemes. These are often again increased in April, but using the preceding September’s inflation figures to determine the amount. However, legislation uses the previous September’s figure when calculating the annual allowance used. So, we will see a mismatch of 7% (the difference between 3.1% in September 2021 and 10.1% in September 2022). Although a rather technical point, this means that the amount of annual allowance used is exaggerated compared to schemes that use the same CPI figures as the legislation does. So, we are likely to see very large annual allowances and therefore an increased number of people suffering an annual allowance charge this year. There are things that can be used to mitigate these charges, such as carry forward and getting good quality financial advice in this area is key to ensuring that only the actual tax due is paid.
There have been promises to review some of these issues for public sector schemes, specifically the NHS Pension Scheme but we still await confirmation of any changes and timing of these changes.
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