The triple lock rule means the state pension will rise by 2.5% next year but benefit recipients are in line for a much weaker increase.
The pension payout was confirmed on Wednesday when the latest inflation figures were published – showing the core Consumer Price Index (CPI) measure at an annual rate of 0.5% in September.
That was up from 0.2% the previous month when the government’s Eat Out To Help Out dining discounts distorted the picture for prices in the economy as it battled back from COVID-19 lockdown damage.
Where jobs are being lost in the UK economy
The state pension increase is determined by three factors – hence the triple lock terminology – as it guarantees to rise by the highest figure out of CPI, earnings growth for the year to July, or 2.5%.
Weakness for pay rises and inflation means the 2.5% figure is locked in.
The government has committed to the triple lock – a manifesto pledge – despite the enormous strain placed on the public finances from the coronavirus crisis which has resulted in record levels of peacetime borrowing.
Analysis by the think tank Institute for Fiscal Studies (IFS) released on Wednesday suggested the funding guarantee was living on borrowed time because of the pressure to cut costs and raise taxes further down the line.
The IFS said the latest inflation-busting uplift would result in the full basic state pension rising to £137.60 per week, with recipients of the full new state pension netting £179.60.
The CPI figure, however, does mean that state benefit increases will be limited to 0.5% rise following the 1.7% seen at the start of the current financial year.
The September inflation number is also used to decide the annual increase in business rates though the chancellor could extend the one year holiday for hard-hit retail and hospitality firms to exempt them from the increase next April.
Track the economy’s recovery from lockdown
Commenting on the rise in inflation, Office for National Statistics (ONS) deputy national statistician, Jonathan Athow, said: “The official end to the Eat Out To Help Out scheme meant prices for dining out rose during September, partially offsetting the sharp fall in inflation for August.
“Air fares would normally fall substantially at this time due to the end of the school holidays, but with prices subdued this year, as fewer people have been travelling abroad, the price drop has been less significant.
“Meanwhile, as some consumers look for alternatives to using public transport, there was an increased demand for used cars, which saw their prices rise.”