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State Pension could increase by 4% if earnings growth sustained

1 October 2019

Pensioners are on track to receive a 4% increase in their ‘triple-lock’ pension payments from April 2020 if earnings growth remains at the same level as in July 2019.

Aegon has calculated that based on July’s earnings growth figures, people who reached state pension age on or after 6 April 2016 and are receiving the full new state pension will see their weekly payments rise from £168.60 to £175.35. Pensioners who reached state pension age before then and are claiming the full old basic state pension will see an increase from £129.20 per week to £134.35.

Under current rules, the state pension is protected by the ‘triple lock’, which is the highest of earnings growth, inflation or 2.5% a year. Inflation stood at 1.7% in August, down from 2.1% the previous month, with the final inflation figure for the year to September due to be announced in mid-October.

However, Aegon points out that earnings growth in the year to July was 4% and in lieu of any last minute changes, the figures mean pensioners look set to receive a 4% increase from next April.

The triple lock was first used in April 2011 to increase the state pension as a way of ensuring pensioners didn’t lag behind the rest of the population in their purchasing power. Since its introduction, state pensioners have done well from the triple lock with overall increases outstripping both price inflation and earnings growth, Aegon said.

A single person receiving the old basic state pension which was £97.65 in April 2010 is now receiving £129.20 per week, an increase of 32% while prices have increased by 24% and average earnings by only 20%. The government has pledged to continue the triple lock until 2022.

Steven Cameron, pensions director, Aegon, said: “Based on the latest earnings growth figures, it looks like state pensioners can look forward to an inflation busting 4% increase in their state pension from next April.

“This will be welcome news for current state pensioners. However, these inflation busting increases do come at a significant cost. The state pension is not funded in advance so pensions are funded on a ‘pay as you go’ basis from today’s workers’ National Insurance contributions. With the prospect of an early General Election, it will be interesting to see where each party stands on commitments to retaining the triple lock for the next five years.”

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