State pensions are set to be boosted 2.5 per cent by the triple-lock guarantee kicking in as Covid-19 supresses both inflation and earnings.
The triple-lock guarantees state pensions rise in line with the highest of average earnings, CPI or 2.5 per cent.
However, with both average earnings and CPI looking low, it appears all-but-certain the 2.5 per cent triple-lock underpin will kick in (the fourth time since 2011/12).
AJ Bell senior analyst Tom Selby sais: “With Covid-19 hammering wages and pushing inflation to almost zero per cent, the value of the state pension triple-lock has never been clearer. If it were not for the policy, pensioners would likely see their state pension frozen next year.”
Covid-19 is increasingly likely to keep CPI subdued (it was 0.2 per cent in August) and average earnings were down 1 per cent in the three months to June. With this clearing the way for the triple-lock 2.5 per cent boost, basic rate pensions and flat-rate pensions are set to increase by £3.40 and £4.40 a week respectively.
Therefore, from April 2021 the old basic-rate state pension will rise from £134.25 to £137.65 while the new flat-rate pension will rise from £175.20 a week to £179.60.
With the November Budget being cancelled, it looks as if triple-lock is safe for at least another year.
However, Mr Selby warned that, with the government increasingly having to fund more Covid-19 support, it is “inevitable” the triple-lock will come under review.
“With the Treasury’s Covid-19 bill now set to soar pass £300bn as the UK enters a second phase of lockdown, it is inevitable the policy will come under review next year,” he said.
“More broadly, as a policy the triple-lock remains a slightly odd feature of the UK’s retirement system. Rather than having this random ratcheting mechanism in place, it would make much more sense to agree the value of state pension the government is looking to achieve and then set a course to reach that level.”