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Inflation dip means pensioners to get an extra £221

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17/10/2018
The state pension will go up by £221 a year from April 2019 after inflation unexpectedly fell in September.

The Consumer Price Index (CPI) dipped to 2.4%, down from a six-month high of 2.7% in August, according to figures from the Office for National Statistics (ONS).

The September inflation figure is important because it influences increases to the state pension and lifetime allowance.

Under the triple lock guarantee, which the government confirmed this week will remain in place for at least the rest of the current parliament, pensions rise by the highest of 2.5%, July’s average wage growth and inflation.

Wage growth for the relevant period was 2.6% so pensioners will see their retirement income rise by this amount from next April.

It means the weekly flat-rate state pension should go up from £164.35 £168.60 and the annual state pension should go from £8,546.20 to £8,767.20 – a £221 increase.

Tom Selby, senior analyst at AJ Bell, said: “Today’s figures will provide a welcome income boost to millions of people currently in receipt of the state pension. Those who get the flat-rate amount will see their annual payment increase by over £220 in April next year, a smaller increase compared to last year but still not to be sniffed at. With inflation returning to the economy, the value of protection against rising prices is not to be underestimated.”

The lifetime allowance – the total amount you can build up in pension benefits over your lifetime without a tax charge – will go up in line with the CPI increase so will increase by £24,720 to £1,054,720 next year.

Kate Smith, head of pensions at Aegon said: “The limit won’t just affect the wealthiest, people on middle incomes who have been saving into a DB [defined benefit] pension for a long time can also be caught by the tax hike that comes with surpassing the allowance. For people approaching this limit, therefore, financial advice is particularly important.”

Inflationary pressures building

According to the ONS, inflation fell in September thanks to cheaper food, transport and clothing prices.

The main upward pressure on the cost of living came from rising gas and electricity prices.

Economists had forecasted an increase to 2.8%.

However, despite the decrease in the headline rate, experts said inflationary pressures are building.

“There are a number of factors which could keep inflation stubbornly sticky in the short-term, most notably the recent surge in the oil price and sterling weakness driven by growing fears of a Brexit no-deal,” said Tom Stevenson, investment director for personal investing at Fidelity International.

“Contained inflation and steadily rising wages mean the Bank of England can remain cautious as the Brexit negotiations continue. It is likely to keep interest rates relatively low for the foreseeable future.”

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