State pension set to rise £473 but benefits hit by lower inflation
State pensioners are set to see payments rise by 4.1% next year, meaning an increase of £473 under the triple lock guarantee.
It comes as data from the Office for National Statistics (ONS) revealed that inflation in the UK fell below the Bank of England's target rate last month for the first time since April 2021.
Under the triple lock, payments are raised by either the rate of inflation, average earnings or 2.5%, whichever is the highest figure. With the inflation figures out, the government will have to raise state pensions by the earnings figure of around 4.1%.
A 4.1% rise would mean an annual increase of around £473 for the new state pension and £361 for the basic pension. The government has not commented on the figures, but is expected to confirm the 4.1% increase during the autumn statement speech on 30 October.
Helen Morrissey, pensions columnist at Yahoo Finance UK and head of retirement analysis at financial services firm Hargreaves Lansdown, said the inflation figure “spells good news for the battered budgets of pensioners who have struggled with soaring costs”.
Read more: UK inflation drops below 2% target for first time since 2021
“It’s also the final piece in this year’s state pension triple lock puzzle. As expected, inflation undershot average wages, putting pensioners on track for a 4.1% increase next April after wages figures were revised yesterday.”
The increase could provide some relief for pensioners after chancellor Rachel Reeves announced that the government will strip winter fuel payments from all but the poorest households.
Dean Butler, managing director for retail direct at Standard Life, part of Phoenix Group, added: “Inflation is back below the Bank of England’s 2% target and, unless the chancellor makes a shock triple lock change at the budget, we now know the state pension will rise by an inflation-busting 4.1% next spring in line with average earnings.
“This means that next year’s full new state pension is set to reach £11,975.60 annually, an increase of £473.”
However, September’s fall in UK inflation looks likely to be bad timing for millions of people who receive state benefits linked to the figure, who could be set to see their payments rise by just 1.7% next April.
A number of benefits, including universal credit, are uprated each tax year in line with the cost-of-living figure for the previous September.
Analysts said the inflation figure is set to go up over the coming months as energy prices increase, meaning the uprating in benefits from next April could be eroded by rising household costs.
Lalitha Try, economist at the Resolution Foundation, said: “This temporary fall is badly timed for millions of low-to-middle income families as will result in a lower increase in their benefits next year.“A more timely measure of benefit uprating would deliver a cash gain to a low-income family with kids of around £74 next year.
Read more: Interest rate cut in November near certain after inflation drops
“The government needs to address the age divide in benefits which has left working-age support fall further behind rising wages and living standards.”
The Joseph Rowntree Foundation, which works on tackling poverty, said a 1.7% increase would mean the standard allowance basic rate of universal credit (UC) would rise by around £1.50 a week from its current level of £90.55, while the basic rate for couples would go up by around £2.50 a week from the current level of £145.13 a week.
The Resolution Foundation economic think tank, which focuses on living standards, said the changes will mean a typical low-income family with two children would see its annual UC award rise by £253 next April.
But if working-age benefits were uprated in line with October’s inflation figure rather than September’s, taking into account the new energy price cap increase which came into effect on October 1, the rate could be 2.2%, meaning the same family would see their UC award rise by £327 instead.
Read more: Would you work longer to keep the state pension triple lock?
The Joseph Rowntree Foundation’s Iain Porter said: “The consequence of today’s rate of inflation is that April’s uprating will be worth just a few pounds to most people.
“The reality is millions of families can’t afford enough food this week, or to turn the heating on as the nights get colder – emphasised by the fact that food price inflation has risen for the first time since early last year.
“The basic rate of universal credit is so insufficient it fails to protect families from hardship, and this increase will barely touch the sides.”
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