Pension Boost Looms | Inflation and Wage Growth Shake-Up for 2024 State Payments

Pension Boost Looms Inflation and Wage Growth Shake-Up for 2024 State Payments. State Pension payments in 2024 could witness a significant upswing, primarily attributed to remarkable wage growth or an unexpected ‘inflation blip.’ Chancellor Jeremy Hunt is considering these factors as pivotal in determining the extent of pension increases.

September Inflation Data to Shape Pension Adjustments

Later this month, Chancellor Hunt will rely on September’s inflation rate to calculate the pension rise scheduled for April 2024. Despite a recent dip in the Consumer Price Index (CPI), Hunt suggests the possibility of a sudden and temporary spike in inflation this month, departing from the usual steady downward trend.

‘Inflation Blip’ Alters Triple Lock Calculations

This unexpected ‘inflation blip’ adds a new dimension to the Triple Lock calculations and could lead to a substantial increase in State Pension payments for millions of recipients under the Department for Work and Pensions (DWP). The August CPI figure will be disclosed on September 20, with the critical September CPI figure—used in State Pension uprating—following on October 18.

Autumn Announcement Expected for State Pension Rise

Pensioners can anticipate Chancellor Hunt’s announcement of the forthcoming State Pension increase in his Autumn Statement, likely to be released in November. The Triple Lock system, employed by the Government for annual uprating, ensures that the State Pension increases annually by the highest of three factors: inflation, earnings growth, or a default 2.5 percent.

Wage Growth and Inflation Vie for Dominance

Current economic indicators suggest that either inflation or earnings will take precedence, with recent statistics indicating substantial wage growth as a potential influencer. Data from the Office for National Statistics reveals that in April-June 2023, annual growth in regular pay (excluding bonuses) reached 7.8 percent, the highest since comparable records began in 2001.

Uncertainty Surrounding Key Factors

The specific figures for earnings growth in May to July, which will be used for the Triple Lock calculations, will be unveiled on September 12. Chancellor Hunt, previously focused on falling inflation, has not ruled out the possibility of a brief inflation surge becoming the pivotal factor in pension increases.

Hunt Perspective on Inflation and Economic Strategy

Chancellor Hunt expressed optimism, saying, “The plan is working, inflation is coming down.” However, when questioned about a potential rise in August, he admitted, “I do think we may see a blip in inflation in September.” He highlighted the importance of reducing inflation, as it directly impacts citizens’ finances.

Financial Analyst Weighs In

Adrian Lowery, a financial analyst at wealth manager Evelyn Partners, emphasized the significance of wage growth and its potential impact on inflation. He cautioned that strong wage growth could hinder the decline of inflation in the coming months, posing a challenge to the Bank of England’s long-term inflation target of 2 percent.

Future State Pension Projections for April 2024

The current inflation rate stands at 6.8 percent, but Chancellor Hunt suggests the possibility of a temporary ‘blip’ that could push it higher before it gradually recedes to around 5 percent by year-end.

Anticipated Pension Increase Figures

Analysts predict a State Pension increase of 7 to 8 percent, depending on the prevailing economic conditions. Here are the estimated calculations for the full New and Basic State Pensions and potential increases based on either 7 percent inflation or 8 percent wage growth.

Full New State Pension

• Current Annual: £10,600
• Weekly: £203.85
• Monthly: £815.40

8% Uprating (April 2024, based on wage growth)

• Estimated Annual: £11,448 (up £848)
• Weekly: £220
• Monthly: £880

7% Uprating (April 2024, based on inflation)

• Estimated Annual: £11,342 (up £742)
• Weekly: £218
• Monthly: £872

Full Basic State Pension

• Current Annual: £8,122
• Weekly: £156.20
• Monthly: £624.80

8% Uprating (April 2024, based on wage growth)

• Estimated Annual: £8,772 (up £650)
• Weekly: £168
• Monthly: £675

7% Uprating (April 2024, based on inflation)

• Estimated Annual: £8,691 (up £569)
• Weekly: £167
• Monthly: £658

Inflation Forecast to Subside

Economists anticipate inflation to drop to 5 percent in the final quarter of 2023, with the Bank of England projecting a slight dip just below 4.9 percent by the year’s end.