State pension triple lock costs could hit £9billion next year if pensioners get £700 pay rise
The state pension triple lock could cost £9billion next year
PA
The state pension triple lock could cost £9billion in 2024/25, £2billion more than current forecasts, according to new calculations.
The state pension is predicted to rise further than the current Department for Work and Pensions (DWP) forecast next year, due to higher-than-expected wage and inflation seen in recent months.
It’s sparked concern about the state pension becoming unaffordable as life expectancy rises.
Alice Guy, Head of Pensions and Savings, interactive investor said: “With more of us living for longer, the triple lock is fast becoming a costly financial commitment for the Government.
The full new state pension could increase by £700, based on a recent forecast
PEXELS
“Both inflation and average wage rises are higher than expected back in March when the DWP set their budgets, which could push the state pension higher than expected.”
The projected state pension rise for the next tax year in the DWP’s March forecast was 5.4 per cent, which would take the full new state pension to £11,172 a year. The total government budget for the state pension was forecast to rise to £134.66billion.
Based on this forecast, the triple lock would cost £6.9billion, interactive investor said.
However, with the Bank of England inflation forecast Q3 and the latest ONS average wages data both at 6.9 per cent, there’s speculation the state pension could rise by more than the March forecast.
If it were to rise by 6.9 per cent as the Bank of England forecast predicted, the full new state pension would reach £11,331 per year – a rise of over £700.
The total government budget would rise to £136.58billion, with the triple lock costing the taxpayer £8.82billion.
However, a near seven per cent rise isn’t guaranteed, as inflation or wages could fall over the next few months.
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The state pension rises annually in line with the highest out of inflation, earnings and 2.5 per cent.
The earnings growth figure used will be published mid-September, while the inflation figure will be released in mid-October.
Ms Guy said: “There are signs that the labour market is loosening, with vacancies falling in recent months.
“This could mean inflation and wages fall slightly over the summer, resulting in a slightly lower state pension bill.”
A Department for Work and Pensions spokesperson said: “As is the usual process, the Secretary of State will conduct his statutory annual review of benefits and state pensions in the autumn, using the most recent prices and earnings indices available.”
The additional cost projections come amid concerns about the affordability of the state pension triple lock.
An aging population means the state pension costs are soaring
PEXELS
Ms Guy said: “It’s a huge headache for the Government as an aging population means that the state pension is soaring, becoming an ever bigger proportion of total Government spending.
“In the long run, the Government could face a stark choice between reducing value of the triple lock or the raising the state pension age more quickly than planned.
“There are no easy solutions as even with the triple lock, the cost of living crisis means that an increasing number of pensioners are living in poverty.
“There’s a big time-lag between high inflation and an increase in the state pension, meaning that many poorer pensioners are facing a shortfall and are struggling to make ends meet.”
Pensioners who are struggling to make ends meet are being urged to check to see if they are entitled to extra support.
Ms Guy said: “If you are struggling on a low income in retirement then it’s important to see if you could be entitled to benefits to supplement your income.
“It’s estimated that 800,000 pensioners are entitled to Pension Credit that aren’t current claiming it, a benefit that is worth an estimated £3,500 on average.”