Retirees are heading for a 10.1% increase to the state pension from next April, after Chancellor Jeremy Hunt confirmed that the triple lock is being protected.
Delivering the autumn statement, Mr Hunt said the Government will fulfil its pledge to protect the triple lock, meaning that the state pension will increase in line with inflation.
The full new state pension is currently £185.15 per week – so a 10.1% increase would push that figure up to £203.85.
For those on the full, old basic state pension, who reached state pension age before April 2016, the increase means a weekly rise from £141.85 to £156.20.
The Pensions Triple Lock and Pension Credit will be protected and rise in April 2023 by 10.1%.
— HM Treasury (@hmtreasury) November 17, 2022
Autumn statement documents said: “The state pension will be uprated by inflation, in line with the commitment to the triple lock.
“The standard minimum income guarantee in pension credit will also increase in line with inflation from April 2023 (rather than in line with average earnings growth).
“This will ensure pensioners on the lowest incomes are protected from inflation and do not lose some of their state pension increase in the pension credit means test.”
The triple lock is normally used to calculate the increase in the state pension, but it was temporarily suspended due to the distorting impacts of the coronavirus pandemic and state pensions rose by 3.1%.
The mechanism – a manifesto promise – guarantees that state pensions increase by September’s inflation figure, wages or 2.5%, whichever is higher.
Consumer Prices Index (CPI) inflation rose by 10.1% in September.
During the final days of her premiership, prime minister Liz Truss had said the triple lock would be protected, but uncertainty surrounded its future as it was not known whether new Prime Minister Rishi Sunak would stick to the commitment.
Ministers had been reportedly considering ditching the manifesto promise due to the squeeze on the public finances in the wake of the mini-budget fiasco.
Helen Morrissey, a senior pensions and retirement analyst at Hargreaves Lansdown said: “After weeks of speculation about whether the triple lock would return next year many pensioners will be viewing today’s news with a sigh of relief.”
She added: “However, it’s also worth saying that this increase will only come into effect from April so there is a tough winter ahead and the Chancellor has been forthright in saying that times will be difficult for everyone.
“The reinstatement of the triple lock after its suspension last year will cool some of the discussion around its long-term viability for a while, but with a review of state pension age due to be published soon, now is the time to carry out a comprehensive review of the state pension to ensure it best helps those who need it most, both now and into the future.”
Ms Morrissey added that pension credit “can make an enormous difference and acts as a valuable gateway to other benefits”.
She added: “However, not enough people are claiming it and more needs to be done to make sure that those who need it get it.”
David Stevens, retirement director at LV=, said: “Millions of retired people will be relieved that the pensions triple lock has been maintained. LV=’s research shows that 41% of over-65s can only just or can’t afford their day-to-day costs.
“The state pension is a crucial part of retirement planning.”
Chris Noon, a partner at Hymans Robertson said: “There is welcome relief that the Government has stuck to its manifesto promise and retained the triple lock, providing pensions with long-term protection. With the cost-of-living crisis and rising inflation set to continue, too many pensioners continue to live on extremely low incomes.”
Pete Glancy, head of policy, pensions and investments at Scottish Widows said: “The Office for Budget Responsibility forecasts 9.1% inflation this year and 7.4% next year. That means that £100 in your pension pot at the start of 2022 will only have the relative buying power of around £83 at the start of 2024.
“However, despite announcements today to ensure state pensions keep pace, key inflation-busting measures for workplace pensions are still outstanding.
“The Chancellor did not make any changes to the Lifetime Allowance for pension savings, currently set at £1,073,100, after which savers face a tax penalty of 55%.
“In today’s acutely inflationary economic context, this means that highly skilled and higher paid workers are at risk of penalties if their assets and salaries simply keep pace with inflation, pushing their pots above that line.
“In turn, this disincentivises senior professionals such as doctors and scientists from working longer, to avoid increasing the size of their pension pot. In some cases, these specialists are simply choosing to retire early.”
A review of the state pension age to consider whether the existing timetable is appropriate will be published in early 2023. It will need to balance several factors, including fiscal sustainability, the economic context, the latest life expectancy data and fairness both to pensioners and taxpayers.
Baroness Ros Altmann, a former pensions minister, said: “How we look after the elderly in our society, who have built this country over many years, is a political choice and I am pleased that the Chancellor has made the right decision to properly protect pensioners.”