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Finance

State pension may shrink next year even if triple lock survives


Inflation is desperate news for pensioners living on fixed incomes in retirement, as it destroys the value of their savings in real terms.

At today’s rate, it will shrink the value of £10,000 held in a savings account to just £8,890 in a year.

That’s an incredible £1,110 of lost spending power.

While savings rates are thankfully improving, even today’s best buy savings accounts offer nowhere near 11.1 percent.

Pensioners may also have seen their pensions and Stocks and Shares Isas ravaged by this year’s stock market volatility.

Many have been forced to withdraw more money to pay higher prices at the same time as their retirement savings shrink, in a double blow.

As if that wasn’t bad enough, the true inflation rate will be much higher for pensioners.

That’s because they spend more of their income on basics such as food and energy, which are rising fastest of all.

The bulk of October’s inflation jump was fuelled by a staggering 24.3 percent jump in gas and electricity prices in a single month.

That is down to the increase in energy price cap from £1,971 to £2,500 on October 1.

Incredibly, the rise in bills would have been an unbelievable 75 percent without the Energy Price Guarantee.

Again, pensioners are among those hardest hit, because they spend more time at home and must stay warm to remain healthy.

As if that wasn’t bad enough, food prices rose by 16.5 percent year-on-year after a massive jump in the price of milk, cheese, pasta, eggs and oils.

These aren’t luxuries, but everyday basics.

The state pension triple lock was designed to protect 12.4million pensioners from a moment exactly like this one.

READ MORE: Ricky Tomlinson warns Rishi Sunak pensioners ‘will die’

It does that by increasing the pension each year either by earnings, inflation or 2.5 percent, whichever is highest.

Yet the future of the mechanism is in doubt at the exact moment pensioners need it most of all.

We still cannot be sure that Chancellor Jeremy Hunt will approve the triple lock for the 2023/24 tax year in tomorrow’s autumn statement.

The Government’s mixed messaging on the subject has left pensioners in a terrifying state of limbo.

It surely can’t abandon them now. That would be kissing the next election goodbye.

Pensioners are the Conservative Party’s core vote and will never forgive them.

Yet even applying the triple lock will not give pensioners full protection against inflation.

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The mechanism uses September’s inflation figure, which at 10.1 percent was a full percentage point lower than today’s monster number.

As I have shown, real pensioner inflation is even higher, given the outsize surge in energy and food bills.

While analysts say inflation will now slow, there could be a sting in the tail. Consumer price growth could rebound to hit a new high in April, when Hunt scales back his energy support package.

The subsequent inflationary shock would more than swallow up next April’s triple lock increase, which means the state pension would shrink in real terms.

It would shrink at an even faster rate if the government scraps the triple lock and gives pensioners an earnings-related increase of just 5.5 percent instead.

There are so many uncertainties now, but Prime Minister Rishi Sunak urgently needs to end one that has had many pensioners in tears.

The triple lock must stay.



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