State pension future increases to be ‘far below’ recent large boosts

State pensioners have been warned sizable increases to their payments may not last for much longer.

Neil Rayner, head of advice at True Potential, told “The Bank of England is expecting inflation to drop to 2.8 percent by this time next year and to 1.5 percent in 2025.

“This means that the triple lock will either rise in line with earnings growth or 2.5 percent, both of which will be far below the large increases we have seen over the last couple of years.”

The latest figures for average earnings, at 8.2 percent for the three months to June 2023, suggest the state pension could increase by seven percent or more next year.

This follows payments increasing by a record 10.1 percent in April this year after high levels of inflation throughout 2022.

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Mr Rayner warned there are other issues putting pressure which are making the triple lock policy less viable.

He said: “With longer-term issues plaguing the UK economy such as slowing economic growth and a falling birth rate, the triple lock may be unsustainable for the Government to afford in the long run, as those in retirement make up a larger proportion of the population.

“The Gen Z and Gen Alpha may face higher retirement ages and should ensure that they have a personal pension to augment their retirement – particularly if they want to retire before the state pension age.”

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He also warned inflation is eating into the value of the state pension and the purchasing power of other retired Britons’ finances.

The expert explained: “The triple lock is designed to solve this issue by increasing the state pension in line with inflation if it is higher than earnings growth or 2.5 percent.

“However, other savings that retirees are using to get them through their retirement will be at risk as inflation will mean that every pound buys fewer goods over time.

“This can lead to a decrease in the overall standard of living for pensioners if savings make up a large proportion of their retirement income.”

He urged people planning for their retirement to look at other sources of income as many will “struggle” to get by relying solely on their state pension. The full new state pension is currently £203.85 a week.

Mr Rayner said the “best thing” a person can do is build up a large personal pension pot and to make the most of employer contributions towards their pensions.

He said: “Currently if you are enrolled into a workplace pension, employers must put in a minimum of three percent if you put in five percent.

“This is particularly attractive for savers now that the government has raised the annual pension contribution allowance to £60,000.

“Choosing to invest any left over cash can also make a huge difference. For example, ISAs remain a tax efficient way to invest a further £20,000 per year.”

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