The Autumn Budget will take place on 29 October but pensioners won’t have to wait another month to discover what kind of pay rise they’ll get on their state pension next year – as the amount it will increase by will be revealed on 17 October.
On that day, the Office for National Statistics (ONS) will announce the rate of inflation, measured by the consumer prices index (CPI), for the month of September, which will directly affect how much state pension you’ll get next year.
CPI measures the prices of roughly 700 everyday goods and services and records whether the prices rise or fall compared with the cost of those goods in the same month of the previous year.
The September CPI figure is closely watched as a number of benefits, including the state pension, are increased in line with it in order to keep up with the cost of living.
The current state pension is protected by something called a ‘triple lock’ guarantee. It applies to both the single-tier state pension, introduced after April 2016, and the basic state pension pre-April 2016.
This means that the state pension increases every year by whichever of the following three figures is the highest inflation, average earnings growth or 2.5%.
Inflation and earnings change all the time, so the government selects the rate from a particular month in the year to increase the state pension.
For inflation, it is the rate of change in CPI from the September of the year prior to the state pension being increased. So, for example, when the state pension was increased by 2.7% in April 2014, that was the rate of inflation in September 2013.
For earnings, it is the rate of change in the three-month average of weekly earnings from the July of the year prior to the state pension being increased.
This means that if September’s level inflation stays in line with August’s rate of 2.7%, the state pension will rise by that amount as it’s higher than July’s average earnings growth figiure of 2.6%.
The minimum pay rise you can expect is 2.5%. This means that:
- The basic state pension (currently £125.95) will be at least £129.10 a week, an extra £164 a year
- The new state pension (currently £164.35) will be at least £168.45 a week, an extra £213 a year.