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Home > News and Reports > What do the new inflation figures mean for pensioners?
Oct 18, 2015
What do the new inflation figures mean for pensioners?

The unpredictably high September inflation figures that were published today has resulted in a 2.7 per cent increase for pensioners, and has two very real implications on the personal finances of nearly every retired resident of the UK.

While many analysts were expecting a decrease to 2.4 per cent, the high level of inflation during the month of September was largely due to air fares, and time and time again, the Bank of England has been unable to meet the government’s inflation target of under two percent.

Since March 2009, interest rates have been kept remarkably low at 0.5 per cent, helping the government create inflationary pressure by generating £375 billion in new money through its quantitative easing programme.

After the September inflation figures exceeded the “triple lock” guarantee provided by the government, pensioners can look forward to a 2.7 per cent rise in their state pension throughout 2018.

According to the pensions campaigner, Ros Altman, “It must not be forgotten that the RPI rise is still hovering around three percent. So, individuals would have received a higher state pension than they currently receive under the triple lock.”

During the emergency budget period that took place in the summer of 2010, the coalition decided to align state pensions with the CPI’s measurement of inflation, rather than the RPI measurement.

However, CPI inflation has been lower than RPI for nearly 20 years, partly due to the fact that it covers slightly different criteria and partly due to the use of a different formula for calculating inflation.

The decision to change to CPI from RPI means that pensions will rise at a slower rate if the only key determinant in an inflationary rate of increase is inflation itself.

With today’s reporting, we learned that RPI inflation was at 3.2 per cent in the month of September. If the RPI were still being used, the difference in state pension payments would equal £28.60 a year.

Evidently, an unintended consequence of the conversion to CPI is the reduced growth rate of pensions. Both parties must agree on a ruling that outlines an affordable way to increase pensions at a rate that pensioners can respect.

As it now stands, the future of the triple lock guarantee itself is up in the air, with politicians from both sides suggesting that the topic of determining pension increases will once again become a hot topic when the next election arrives.

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