State pension to rise ‘five times inflation’ as triple lock kicks in

If latest forecasts are correct, it could potentially end up being worth five times the inflation rate by the end of the year.

While this is undoubtedly good news, it will only go a small way to compensating for Rishi Sunak’s decision as Chancellor to scrap the state pension triple lock for the current financial year.

The triple lock has been restored for the 2023/24 financial year, and the state pension will increase by a hefty 10.1 percent from Monday April 10. 

That’s the largest ever increase, and will lift the maximum new state pension by almost £1,000, from today’s £9,627.80 a year to £10,600.20.

The new state pension is paid to those who retired from April 6, 2016. Older pensioners continue to receive the basic state pension. 

That will only rise from a maximum of £7,376.20 a year to £8,122.40. This is roughly £2,500 less than the full new state pension, angering many.

Some basic state pensioners will get this topped up with additional state pension such as Serps and S2P, but others do not and get a pittance.

Neither state pension is enough to guarantee a comfortable retirement, unless retirees have company and personal pensions and savings on top.

Yet April’s payout is likely to herald a reversal of the last disastrous 12 months, which saw the state pension rise by just 3.1 percent from April 2022, while inflation hit a staggering 11.1 percent in October.

That was three-and-a-half times the state pension increase, while essentials like food and fuel rose at an even faster rate.

In 2023, the opposite is going to happen, if latest inflation forecasts are to be believed.

The inflation rate for January was still in double digits at 10.1 percent. Ironically, that is the same rate as the upcoming triple lock increase.

The triple lock increases the state pension in line with earnings, inflation or 2.5 percent, whichever is highest. The inflation figure is based on September’s rate, but does not come into force for another seven months.

By April, inflation won’t have fallen much. But a new batch of forecasts suggest it could have collapsed to around two percent by the end of the year.

Yes, you read that correctly. Two percent. I find that hard to believe, too, but plenty of experts say otherwise.

Investment bank Citi reckons inflation will be around 2.3 percent by November. Fund manager Investec says December’s figure could have dropped to just 1.6 percent.

Both of these projections are lower than the Bank of England’s own forecast of four percent inflation across the final three months of the year.

However, the BoE does not have the best track record in these matters. In fact, a few days ago I called it the world’s worst economic forecaster.

Another financial expert, Martin Beck, chief economic adviser to the EY Item Club, said he expects inflation to start “falling faster than expected significantly undershooting the BoE’s two percent target”.

READ MORE: ‘Need £10,000 more’ – State pension must double to be ‘comfortable’

Beck reckons inflation will plunge due to the “substantial decline in wholesale energy prices”, and lower commodity and shipping costs.

The fall could be so dramatic that the BoE rate-setting monetary policy committee “will be mulling rate cuts by the end of this year”, he said.

We’d better cross our fingers and hope these forecasters have got it right. It seems unlikely at the moment, as food and fuel prices continue to rocket and pensioners feel poorer by the day as they struggle to find basic living costs.

Even if inflation does fall sharply, the cost of living isn’t actually going to fall. All that will happen is that prices will rise at a slower rate from today’s inflated levels.

Yet the prospect of a sharp collapse in the inflation rate in the months ahead does offer some hope for pensioners, who will finally get an inflation-busting pay rise over the 2023/24 financial year.

It still won’t be enough, but it does underline the importance of the state pension triple lock, and the fury politicians will unleash if they ever scrap it for good.