- Fixed Term Annuity
- Equity Release
- Supporting You
- Supporting Your Client
- Document Library
The Office for National Statistics has now released September 2023’s Consumer Price Index (CPI) rate of 6.7%, which remains unchanged from August 2023.
September’s CPI rate is important as it is used to determine increases to many tax allowances and bands, including many social security benefits and the state pension.
The state pension is protected by the ‘Triple Lock’, which means that the new flat-rate state pension and old basic state pension increases each April by the higher of:
As this year’s increase in average earnings was 8.5%, it is expected that this higher figure will be used to increase the new flat-rate state pension and old basic state pension. This would mean that:
For the ‘additional state pension’, this isn’t protected by the ‘Triple Lock’ and should be uprated by September’s CPI figure of 6.7%. This is the earnings-related element of the state pension paid to individuals who didn’t contract out of the State Earnings Related Pension Scheme (SERPS) or the State Second Pension (S2P).
Defined Benefit Pensions
Defined Benefit (DB) schemes typically use September’s CPI as the reference point for uplifting benefits for both deferred members and retired members in receipt of a scheme pension. However, in many cases these increases are capped at a maximum of 2.5%, 3% or 5%.
For example, the annual Guaranteed Minimum Pensions Increase Order specifies the percentage by which GMP built up after 6 April 2008 (Post ’88 GMP) must increase. This is based on the lower of September’s CPI and 3 per cent, so should be 3% for the 2024/25 tax year.
Importantly, September’s CPI rate is also relevant for calculating the amount of annual allowance used up by any individuals who are members of a DB scheme. The CPI rate is used in step 4 of the opening value calculation when calculating the ‘pension input amount’.
Social Security Benefits
Many benefits, including working-age benefits, benefits to help with additional needs arising from disability, carers’ benefits, pensioner premiums in income-related benefits and other statutory payments are usually increased each year in line with September’s CPI.
However, there has been some suggestions that Jeremy Hunt is considering a below-inflation increase to benefits for 2024/25, with Rishi Sunak so far refusing to commit to an increase in line with inflation. It is expected that the final decision will be announced in the Autumn Statement on 22 November 2023.
September’s CPI is relevant to many individuals, as it affects the benefits and pensions they will receive.
Inflation started to spike in 2021, causing a cost of living crisis. Since reaching a 41 year high of 11.1% in October 2022, the rise in UK consumer prices has been easing. It is therefore slightly concerning to see this trend now pause, with the rate unchanged for September.