What wage increases mean for state pension triple lock and Bank of England
EXCLUSIVE: Another big state pension boost is likely for next year but the triple lock policy may soon be seen as unsustainable, economist Julian Jessop has warned.
State pensioners are on track for another sizable payment increase next year but the Government coffers are struggling to cover the cost.
Average earnings rose 8.2 percent between April and June 2023 with some experts predicting this will now be the key metric for deciding next year’s increase in line with the triple lock.
Julian Jessop, from the Institute of Economic Affairs, told Express.co.uk: “It looks like the July numbers will be 7.5 percent or maybe even as high as eight percent. That will be higher than the inflation number and therefore add to the cost of the triple lock.”
An eight percent increase would boost the full new state pension from the current £203.85 a week to £220.15 a week, an increase of almost £850 a year.
Mr Jessop warned another large payments hike emphasises need for changes to the triple lock in the near future.
He said: “They did suspend the triple lock two years ago because of distortions due to COVID-19, there might be a case to change it now due to distortions with regard to the cost-of-living crisis.
“I think, politically, they will stick with the triple lock because there’s an election probably next year, so they won’t change it.
“But it’s another reminder of the underlying problems of having a mechanism that always gives the best possible deal for pensioners regardless of what the underlying economic circumstances are.”
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High levels of inflation last year meant state pensioners received a record 10.1 percent increase this April.
Pete Hykin, CEO and Co-Founder at pension provider Penfold, told Express.co.uk another large payment boost means the triple lock may come under more scrutiny.
He said: “Periodic significant jumps might prompt governmental reviews, considering the considerable strain on public finances.
“The future trajectory of the state pension, thus, not only hinges on economic factors but also on political will and policy considerations.”
He urged pensioners to make sure they do not overly rely on their state pension to get by. He explained: “While the predicted inflation-led increase bodes well for pensioners in the short term, the long-term view necessitates prudence, planning, and staying updated with economic and political developments.
“Diversification remains the touchstone for individual financial security, and pensioners would do well to consult with financial professionals to navigate the uncertain waters ahead.”
Mr Jessop also said bosses at the Bank of England may be concerned the rise in average earnings could scupper their efforts to bring down inflation, but he sees things differently.
He said: “Lots of people at the Bank of England believe that wages drive prices so that if wage inflation is strong enough, it can take longer for inflation to fall.
“I don’t personally agree with that, I think that all wage increases do is shuffle the same amount of money around the economy, and are actually a good thing, because they help deal with labour shortages, which is part of the problem in the first place.
“I’m fairly relaxed about wage increases myself but I know some in the Bank will look at it and think inflation is going to be higher for longer, and we’ll have to raise interest rates again.”
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