This week the CPI annual rate for the year to September was revealed to be 0.5%, while earnings figures, released in July, stood at minus 1%. What is this likely to mean for next year’s state pension and lifetime allowance increases?
This week’s figures from the ONS show that inflation in the year to September was just 0.5%. This figure is important as the increase in prices over the year to that point is conventionally used in calculating the rate at which certain benefits and allowances are increased the following April.
State pension
The basic state pension element of the old state pension and the new state pension (excluding any protected payment) both currently increase in line with the government’s ‘triple lock’, i.e. the higher of the growth in prices, earnings, or 2.5%. So as the relevant prices growth figure is the 0.5% described above and with earnings having fallen by an estimated 1% over the year to July, the 2.5% rate is the highest of the three measures.
This will mean that, from next April, if the 2.5% increase rate applies as expected, a full basic state pension will rise from its current £134.25 per week to £137.60, while a full new state pension will increase from £175.20 per week to £179.60.
The Institute for Fiscal Studies (IFS) has published an interesting article on the triple lock guarantee that can be accessed here.
Lifetime allowance
The lifetime allowance is a limit on the total amount of pension benefits an individual can accumulate within pension schemes without having to pay an additional tax charge on the excess.
Having reduced from a high of £1,800,000 to currently stand at £1,073,100, an increase next year in line with 0.5% CPI inflation will mean an additional £5,500 - £6,000 approximately, depending on rounding – to reach a figure in the region of £1,078,600 - £1,079,100.
