Pensions & Inflation

From : Craig McCallum (craigmccallum@btinternet.com)

Citi is one of the world’s biggest banks and has predicted inflation in the UK will hit 18% early next year as consumers count the cost of the deepening energy crisis caused by raw materials, labour shortages and food price increases.  Citi said it expects the consumer prices index to breach 18% in the first quarter of 2023, while the retail prices index inflation rate will soar to 21%. Citi’s prediction is significantly higher than previous modelling of the impact on rising costs. Earlier this month the Bank of England said there could be an increased interest rate rise of 1.75% in the biggest hike in 27 years by the end of the year. Benjamin Nabarro, the chief UK economist at Citi, said its interest rate forecasts had been updated after a 25% and 7% rise in UK gas and electricity prices respectively last week.

The price of gas for next-day delivery to the UK shot up 37% to 495p a therm at one point, the highest since March. The month-ahead gas price touched record highs, up 16% to 540p a therm. In Europe, the gas price according to the TTF benchmark rose more than 10% to a high of €290 (£245) a megawatt hour and in France the year-ahead electricity price surged to over €800 a megawatt hour, up from just over €100 at the start of the year. Citi predicts that typical dual-fuel tariff energy bills will hit £3,717 in October, higher than most forecasts of between £3,500 and £3,700. Ofgem, the energy regulator for Great Britain, will announce the level of the next price cap which Citi Bank predicts could rise to £4,567 in January – about £300 higher than some forecasts – before reaching £5,816 in April next year.

These grim inflation forecasts will impact upon the possible removal of the pensions triple lock by the Chancellor. However, the state pension could increase to nearly £10,900 a year if the next Tory Chancellor honours the triple lock pledge and increases payouts in line with such predicted sky-high inflation rates.

That is because future State Pension increases will be applied from a lower base. Whereas,  as inflation hits double digits, the full New State Pension could increase from today’s £9,627.80 to more than £10,800 per year. Yet those who retired on the Old State Pension which currently pays just £7,376.20 a year will only get a fraction of that sum. Under the triple lock, the State Pension rises each year by earnings, inflation or 2.5 percent, whichever is highest. With consumer price growth hitting 10.1% in July and set to top 13%in in the autumn, September’s inflation figure will determine what pensioners get in April 2023. This would grant pensioners their biggest ever increase, but many who retired before April 6, 2016, on the old basic State Pension, will feel badly treated.

Last April, state pensioners received an increase of only 3.1 per cent, significantly below the current rate of inflation, so pensioners will justifiably expect to receive the full benefit of the triple lock. If the triple lock is applied, pensioners would receive a pension increase of around 8.3%in line with increased earnings. Older pensioners on the basic State Pension are particularly angry, because they feel cheated by the current two-tier system whereby they are excluded from the new Higher state pension to which they have contributed more over the years. As inflation hits double digits, the full New State Pension could increase from today’s £9,627.80 to more than £10,800 per year. Yet those who retired on the old State Pension will receive an incredible £2,251.60 less than the new State Pension.

With consumer price growth hitting 10.1 percent in July and set to top 13 percent in the autumn, September’s inflation figure will determine what pensioners get in April 2023. This could potentially grant pensioners their biggest ever increase, but many who retired before April 6th 2016 on the old basic State Pension will feel let down.

Both new and old State Pensions will rise by the same relative amount, but because the value of the old State Pension is lower, so is its potential decrease in value. Therefore, can I suggest to our villagers that we all send an email to our MP James Gray at jamesgraymp@parliament.uk requesting him to please raise these important issues at one of the PMQ sessions in parliament as soon as possible, as many millions of pensioners are affected by this. A simple solution would be to abolish the two tier system and thus provide ALL pensioners with the same new pension rate.

Craig McCallum

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