Millions of retirees will receive the biggest pay rise on record as the state pension will soar to £10,600 a year next spring, after the Prime Minister confirmed she would keep the “triple lock” manifesto promise.
With inflation in the year to September recorded at 10.1pc, the weekly new state pension should rise to £203.85 from April 2023, equivalent to £10,600.20 a year, according to calculations by the wealth manager Quilter Cheviot.
This would be £972 more than this financial year and the first time the state pension has exceeded £10,000 per year. The basic state pension, paid to those who reached the state pension age before 2016, will increase to £156.20 a week or £8,122,40 annually.
However, for pensioners to receive this rise, the triple lock must remain intact. Both Prime Minister Liz Truss and Chancellor Jeremy Hunt earlier this week refused to rule out abandoning the triple lock, which promises to increase the state pension every April in line with the highest of the previous September’s inflation rate, wage growth or 2.5pc.
But speaking to MPs in the House of Commons today, after days of speculation, Ms Truss confirmed the triple lock would remain in place.
She said: “…we have been clear in our manifesto that we will maintain the triple lock and I am completely committed to it, so is the Chancellor.” She later added: “I have been clear we are protecting the triple lock on pensions.”
Had the Government chosen to increase the state-backed benefit by the wage growth figure of 5.5pc instead, the new state pension would rise to £195.35 a week or £10,158.20 annually. The basic state pension would rise to £149.65 a week or £7,781.80 annually.
David Denton, of Quilter Cheviot, said: “It has become almost impossible to predict the direction of travel of government policy, which means it is very difficult for pensioners to plan with any kind of certainty.”
The triple lock was first broken by former Chancellor Rishi Sunak in September last year, after a large rise in wages following the end of the pandemic restrictions.
The state pension should have risen by 8.1pc in April 2022 but the Treasury opted only to increase the payment by the 3.1pc inflation figure.
“As such, there is a precedent that they could say inflation is unusually high and choose to discount it – a move that would seriously damage pension income for years to come,” Mr Denton said.
“Thanks to last year’s disappointing increase, pensioners will now be seeing their spending power rapidly swallowed up by soaring inflation and many will be struggling to make ends meet,” he added.
However, comments this week have cast doubt on the pledge. When asked in the House of Commons to reaffirm the Government’s commitment to the triple lock, Mr Hunt said that while he was aware of how many vulnerable retirees there are, he would not make “any commitments to individual policies”.
He added: “Every decision we make will be made through the prism of what matters to the most vulnerable.”
Steve Webb, a former pensions minister and now partner at LCP, a pensions consultancy, warned of a double blow. “Breaking the triple lock could cost a single pensioner £442 per year. A reduced pension rise, combined with a cut in help on energy bills, could be part of a ‘double whammy’ for millions of pensioners,” he said.
Half of pensioners rely on the state-paid benefit as their main source of income, according to the pension provider Royal London.
Caroline Abrahams, of charity Age UK, said removing the triple lock would be “devastating” for millions of older people at a time when food and energy prices are soaring.
“Knowing their state pension would keep pace with rising prices because of the triple lock has given precious hope to many older people at a time of great anxiety. For the Government to take that away from them now would be a hammer blow, as well as a flagrant breach of trust,” she said.
But experts have warned that the triple lock policy could be under threat as the new Chancellor seeks to balance the nation’s books. Estimates from the Office for Budget Responsibility suggest that every percentage point increase in the state pension costs the Treasury around £1bn. Quilter estimated a 10.1pc rise in pension payouts would cost the Exchequer £9.59bn in the next financial year.
The triple lock has become a source of intergenerational tension, as younger workers’ wages have been vulnerable to the erosive impact of inflation. From June to August, real regular pay fell by 2.9pc year-on-year.