Last Thursday, Bank of England policymakers admitted inflation is likely to be “several percentage points” higher than the 7.25 percent it had previously forecast. Price growth is already on course to hit eight percent by June and could top 10 percent by the autumn.
This would put even more pressure on everybody’s wallets, especially pensioners living on fixed incomes.
The good news is that the State Pension should rise in line with inflation next year, under the triple lock mechanism.
Introduced by the coalition government in 2010, the triple lock guarantees the State Pension will rise either by 2.5 percent, earnings or inflation, whichever is highest.
From April, the new State Pension will pay a maximum £185.50 a week, which works out as £9,627.80 a year.
A 10 percent inflationary uplift would increase that by an incredible £963 from April 2023, to £10,591 a year.
There is another potential piece of good news. The Bank of England reckons inflation will have fallen back by Spring next year.
If it is correct, a 10 percent State Pension hike will increase it faster than prices.
That would help state pensioners claw back some of this year’s losses, after Sunak decided to scrap the earnings element of the triple lock.
Under the triple lock, state pensioners would have received a pay rise of more than eight percent from April 6.
However, the Department for Work & Pensions argued that earnings had been “skewed and distorted” by the pandemic, and refused to pass it on.
Instead, pensioners will get just 3.1 percent next month.
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Rising inflation is squeezing everybody right now but it could have a silver lining for the State Pension, said Steven Cameron, pensions director at Aegon.
Sunak uses the September inflation figure to calculate the triple lock uplift, when price growth could hit eight or even 10 percent.
Cameron said: “This could put state pensioners on target for a bumper pay rise in 2023, potentially the highest increase ever.”
That would compensate for this year’s disappointing increase, he added. “While not helping to alleviate this year’s pressures, it will at least offer a more generous increase in the future.”
Cameron said there would be a long-term benefit for everyone, too. “A significant increase in the State Pension will boost the income of state pensioners for generations to come.”