Inflation falls below zero: what it means for benefits and the State Pension
September's CPI figure is very important for pensioners and those on benefits.
The Consumer Prices Index (CPI) measurement of inflation fell to -0.1% in September from 0% in August, according to the Office for National Statistics (ONS).
Falling motor fuel prices and a smaller rise than usual in the cost of clothing were the main contributors to the drop.
The CPI rate has been close to zero for much of this year and last fell into negative territory in April.
The Retail Prices Index measurement was 0.8%, down from 1.1% in August.
Why the September CPI figure matters
The September CPI inflation figure is important as a number of benefits are increased in line with it in order to keep up with the cost of living.
The Government has already announced that a number of benefits, such as Child Benefit and Jobseeker's Allowance, will be frozen next year. And as downrating benefits is not allowed, the negative drop means that almost all benefits, apart from the State Pension, are likely to be frozen from April 2016.
What it means for the State Pension
The Basic State Pension is protected by a ‘triple lock’ guarantee, which ensures it increases every year by whichever of these three figures is the highest:
- September CPI measure of inflation;
- Average earnings growth; or
- 2.5%.
Earnings growth is running at around 2.9% according to the ONS, so pensioners receiving the full Basic State Pension will see their income rise from £115.95 per week to £119.31.
It’s worth noting that the State Pension is changing from 6th April 2016 and many will be eligible for the new State Pension which will pay a flat rate. At the moment the full weekly rate is set at £151.20, the current level of Pension Credit.
However, it remains unclear whether the 'triple lock' applies to the new State Pension. If it does, then the 2.9% increase would bump it up to around £155.50.
Tom McPhail, head of retirement policy at investment company Hargreaves Lansdown, said: "It is also important to bear in mind that in the first few years, most people will not qualify for the full new State Pension; the Department for Work & Pensions still has a huge challenge on its hands in communicating how the new State Pension will work, how everyone’s entitlement has been calculated and what their options are to improve their circumstances.”
Watch out for the Autumn Statement
The freeze in benefits as well as the basic State Pension changes won’t be official until the Chancellor delivers the Autumn Statement.
This will take place on Wednesday 25th November 2015.
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