Britain’s retirees will receive a boost in their state income next spring as the UK’s Office for National Statistics (ONS) reported that the annual inflation rate was 3% at the end of September, its highest level in more than five years.
As a result of the increase in inflation, British pensioners will receive a 3% rise in the spring of 2018, when UK’s state pension will be uprated according to the so-called “triple lock” protection guarantee. The triple lock, introduced in 2011, guarantees that the basic state pension will rise by at least 2.5%, the rate of inflation, or average earnings growth, whichever is largest.
According to the BBC, the majority of public sector employees will see significant increases in their accrued pension benefits next year because September’s CPI data is used as the basis for the payments. Teachers will see a 4.6% increase, National Health Service employees will get a 4.5% increase, and police officers will receive a 4.25% raise. Recipients of the new state pension will have their weekly income increased to £164.38 from £159.60.
The maximum amount workers are allowed to save into a defined contribution pension plan, known as the Lifetime Allowance, will also rise by 3%. Those with pensions exceeding £1 million ($1.32 million) will pay a 55% tax charge on any withdrawals. However, in April 2018, they will be allowed to save an extra £30,000 without paying tax.
Because of the triple lock, pensions have risen by at least 2.5% every year since 2010. However, the UK government has considered eliminating the triple lock feature, and a recent report from the Organization for Economic Cooperation and Development (OECD) recommended removing it.
“Indexing the state pension solely to average earnings would be fairer,” said the OECD, “while it would still allow pensioners to benefit from improvements in living standards.”
The rise in inflation also means that UK businesses will pay an additional £270 million in business rates next spring, according to the British Retail Consortium (BRC). The business rates are based on the retail prices index (RPI), which is linked to, and typically higher than, the CPI. According to the ONS, the RPI was 3.9% at the end of September.
“Without intervention to freeze business rates from government, retailers and other firms will face a [rate increase] twice as large as last year,” said the BRC in a statement. BRC CEO Helen Dickinson added, “The consequences of today’s RPI figures could be severe for many shops in a precarious position and struggling to survive. Consumers, already seeing household incomes eroded, will face further misery as the pound in their pocket buys them less at the checkout.”
Tags: Lifetime Allowance, Office for National Statistic, Pension, UK