“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.”