New data shows UK inflation has eased, to the relief of pension investors and consumers alike, but as earnings now outstrip inflation, questions are being asked again about the triple lock, under which state pension increases in line with whichever is highest of rising prices, earnings or 2.5%. 

 

The consumer prices index rose by 4.6% in the 12 months to October, still more than double the Bank of England’s 2% target. On a monthly basis, CPI did not change in October 2023. 

 

The Office for National Statistics said the largest downward contribution to the monthly change came from housing and household services, where the annual rate for CPI was the lowest since records began in January 1950. In the 12 months to September, CPI had gone up by 6.7%. 

 

The second-largest downward contribution to the monthly change in both CPIH and CPI annual rates came from food and non-alcoholic beverages where the annual rate was the lowest since June 2022. 

 

The change means inflation is now lower than the Bank of England’s base rate of 5.25%, which was kept at that level earlier this month, when governor Andrew Bailey said the Bank would "keep interest rates high enough for long enough to get inflation back to the 2% target”. 

 

He said at the time that he expected inflation to fall further this year and next. 

 

Earnings figures published on Tuesday showed earnings are outstripping inflation for the first time since October 2021, as they rose by 7.9% between July and September. 

 

Even though prices are rising more slowly, state pensioners are set to receive an increase based on summer 2023 figures in April next year. If the triple lock is honoured in full, they could potentially receive an 8.5% increase in April, noted Steven Cameron, pensions director at provider Aegon.  

 

It has previously been floated that instead of reflecting full earnings growth, the state pension increase could only mirror earnings minus bonuses, following one-off settlements with public sector employees.  

 

However, Cameron said with rumours that there is more fiscal headroom than anticipated, the government could choose to grant the full 8.5% to woo pensioners ahead of the general election. 

 

“But this is paid for out of the national insurance [contributions] of today’s workers and raises real questions around intergenerational fairness,” he said. 

 

Ahead of next week’s Autumn Statement, Cameron called on political parties to show how they will make the generous triple lock policy sustainable.  

 

The policy, whereby pensions rise by the highest of earnings, inflation or 2.5%, is under strain as people live longer and the large cohort of baby boomers is now retiring or already retired. There are about 12.6m state pensioners in the UK, supported by 32.97m working people. In England and Wales, the proportion of people aged 65 years and over rose from 16.4% to 18.6% between 2011 and 2021. It is expected that this will increase further over the next decade, to between a fifth and a quarter of the population. 

“Whatever the decision for next April, volatile price inflation and earnings growth add to growing concerns that the triple lock in its current form is unsustainable longer term. Prior to the general election, we’re calling on the main parties to make clear their proposals to make it sustainable, reliable, and intergenerationally fair,” said Cameron. 

An 8.5% increase would see the new state pension increase by £901.02 to £11,501.22 a year, according to Aegon, while the old state pension would rise by £690.40 to £8,812.80.