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State Pension set to increase above rate of inflation due to triple lock guarantee

  • Triple lock uplift means new State Pension is set to increase by at least £6.75 to £175.35 a week from April 2020, and by £351 a year1 
  • For those who reached state pension age before April 2016, the basic state pension will increase from £129.20 to £134.37
  • The Pensions lifetime allowance will go up by around £17,935 to a new limit of £1,073,000 (currently £1.055m) from the new tax year


The latest data shows UK inflation (CPI) grew by 1.7% in September 20192. The reported change in inflation for September is important as a number of state benefits are uprated annually in line with this data. Because of the triple lock guarantee, the new state pension will increase by 4% to £175.35 a week from April 20201 (4% is due to the reported average earnings for the three months to July 2019 being higher than either inflation or 2.5%).


Andrew Tully, Technical Director, Canada Life commented:

“The increase to state pensions will be a very welcome above-inflation boost for the many retirees who are looking to balance household budgets. This is the third highest increase in the new state pension since the triple lock guarantee was introduced and the third time the state pension has been increased by wage growth. This increase does cast a spotlight on the long-term sustainability of the triple lock although government has committed to it in this parliament or until 2022, whichever comes sooner.


“The small increase in the amount people can save into a pension before being hit by the lifetime allowance tax is helpful and will present new financial planning opportunities. However this pension charge needs a fundamental rethink as recent government figures show just how many more people are being caught in this tax net. Simply ditching it as we already limit annual contributions would simplify the system and not penalise those people who are enjoying good investment growth.”


History of the State Pension Triple Lock 
Introduced by the Conservative led collation Government in 2011/12, the ‘triple lock’ guarantees to uprate the basic State Pension and new State Pension by the highest of earnings, prices (CPI) or 2.5%.


Since 2011/12, the following benchmarks have been used for the annual uprating in line with the triple lock guarantee.

2011-12 4.6% (RPI)*
2012-13 5.2% (CPI)
2013-14 2.5% (minimum uplift)
2014-15 2.7% (CPI)
2015-16 2.5% (minimum uplift)
2016-17 2.9% (earnings)
2017-18 2.5% (minimum uplift)
2018-19 3.0% (CPI)
2019-20 2.6% (earnings)
2020-21 4.0% (earnings)

Source: House of Commons Briefing Paper ‘State Pension uprating – 2010 onwards’ 3
*RPI subsequently changed to CPI in the following years


History of the Pensions Lifetime Allowance 
The Lifetime Allowance was introduced in April 2006 as a measure to restrict the overall value of pension savings. It was set at £1.5m in tax year 2006/07 and increased annually to a high of £1.8m in 2010-2012. The allowance has been reduced over subsequent tax years to a current £1.055m.


The latest HMRC data4 shows the total tax take from the Lifetime Allowance charge has increased by more than 1323% from £13m in 2006/07 to £185m in 2017/18. The number of charges levied has increased by 499% from 760 in 2006/07 to 4,550 in 2017/18 tax year.


Source:

  1. The State Pension is currently increased annually either by inflation (CPI), earnings or 2.5% ‘the triple lock’, whichever is the highest number. Average weekly earnings for the three months to July 2019 was 4%.
  2. Statistics Consumer Price Index (September 2019)
  3. House of commons Library - State Pension Uprating (February 2018)
  4. Pensions Lifetime Allowance Statistics