State pension 2019: Retirees will get an extra £220 next year, new figures reveal
17th October 2018 00:01
by Edmund Greaves from interactive investor
The state pension will rise by around £4.25 a week or £220 a year from next April, new figures reveal.
The full state pension will be worth £168.60 per week, or £8,767.20 after rising from £164.35 a week - above the rate of inflation.
The basic state pension - which is still paid to people who reached state pension age before April 2016 - will go up from £125.95 a week to £129.20. This additional £3.25 a week will rack up to £169 over the year.
The level of the state pension rises every year by the highest of 2.5%, growth in earnings or Consumer Price Index (CPI) inflation. This is thanks to the 'triple lock' guarantee, which has given retirees' incomes a strong boost since it was first introduced in 2010.
New figures today revealed that inflation fell from 2.7% in August to 2.4% in September according to the Office for National Statistics.
Since the inflation rate is lower than average wage growth, which was 2.6% in July, it is wage growth that will determine the level of next year's state pension rise.
While wages grew at a bumper 3.1% between July and September, the figure more commonly used to uprate benefits is the previous July’s figure, which this time around was 2.6% including bonuses.
The fall comes as a surprise to inflation watchers as it was expected to rise to 2.8%, and means an above-inflation increase for pensioners.
- Happy 70th birthday, state pension... though it's a muted celebration
Nathan Long, senior pension analyst at Hargreaves Lansdown comments: “Having at least some secure income in retirement is important for nearly everyone, making the State Pension fundamental to the UK’s pension system.
"Increasing payouts using the triple lock keeps pensioners insulated from the difficulties workers are facing, where inflation is rising faster than wages, but this will do little to bolster the pockets of pensioners living in poverty."
- Is Chancellor Philip Hammond planning to cut pension tax relief in the Autumn Budget?
Last week, the government reaffirmed its commitment to the state pension triple lock, for the remaining duration of this Parliament.
Mr Long adds: “The government is committed to maintaining this policy for the remainder of this parliament but there is increasing demand for it to be scrapped thereafter, as many believe it has served its purpose.”
Inflation dip may be 'short-lived'
While the slowing rate of inflation comes as a surprise, it is unlikely to continue to fall for long. Wage growth outstripping inflation is usually a forewarning of inflationary pressure building up as consumer demand increases.
Miles Eakers, chief market analyst at Centtrip explains: " This should be welcome news for the Bank of England, as rising prices could trigger an interest rate increase, something the central bank looks set to avoid until after a Brexit agreement has been made. However, this dip in inflation may be short-lived.
"Basic wages grew at 3.1% in August – the fastest pace in nearly a decade. This, in turn, should boost consumer spending, adding to inflationary pressure in the coming months.
"Meanwhile, the current deadline for the UK to leave the EU is 29 March 2019. The Bank of England will probably raise the interest rate again shortly after that in May."
- How much cash would you need to quit work?
Alistair Wilson, head of retail platform strategy at Zurich, adds: “Over the last few months employee’s pay packets have grown at their strongest rate since the financial crisis, but when you put inflation into the mix, the growth is much more restrained.
"Inflation may have dropped to 2.4%, but there is continued tension on household spending, which is eating away at take home pay and impacting how much people are able to save."
This article was originally published in our sister magazine Moneywise, which ceased publication in August 2020.
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.