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Pensioners to get income boost thanks to inflation

17/10/2017

If you’re covering today’s inflation numbers, please see the following comment from Ian Browne, retirement planning expert at Old Mutual Wealth

Ian Browne“September’s inflation of 3% is solid news for pensioners as it sets the rate for the 2018/19 tax year. The new inflation rate will see the flat-rate state pension rise by £4.78 a week. Although a modest increase, in an environment where pay growth lags inflation pensioner incomes will keep pace with prices while the working age population feel the squeeze.

“The pension triple-lock - which the Conservatives were forced to retain as part of their power-broking agreement with the DUP - ‘locks-in’  a minimum 2.5% annual increase to the state pension. But the triple-layered protection means the state pension rises in line with inflation or wages if either of those are higher than 2.5%.

“The cost of the state pension is over £100bn a year and the triple-lock means that cost is set to increase over the long-term. It is estimated it will cost around 6% of GDP by 2050, according to Pensions Policy Institute research. The Conservatives had promised to remove the 2.5% minimum and retain a ‘double-lock’ of inflation and earnings.

“Interestingly, keeping the triple-lock is actually fairly painless in the short-term while inflation is above 2.5%, since the double-lock would still see retirement incomes rise above the minimum.

“Removing the guaranteed 2.5% minimum increase would be cheaper over the longer-term, since it removes the ratchet effect when pay and inflation are low. In a Budget that is expected to favour the young, scrapping the triple-lock seems logical. But as the cost-saving is only felt in decades to come it is a tough policy for any Chancellor to ditch.”

For more information contact

Michael GlenisterOld Mutual Wealth020 7778 963807469 144535michael.glenister@omwealth.com
Kathleen GallagherOld Mutual Wealth023 8072 629307990 004932kathleen.gallagher@omwealth.com

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