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Pension savers to get income boost as inflation rises

The state pension will increase by at least £4.78 a week, the Lifetime Allowance will increase by £30,000 and public sector pensions will be upgraded by up to 4.6 per cent, following today’s September CPI inflation figures of 3 per cent.

The increase, up from 2.9 per cent in August, has sparked predictions of a 0.25 per cent increase in the Bank of England base rate in November, although the £825 increase in the cost of living of the average family has also raised concerns at the possibility of a consumer slowdown.

The ONS’s September CPI inflation figures will increase the Lifetime Allowance for the first time, rising to £1,030,000. Those above the current Lifetime Allowance of £1,000,000 without Lifetime Allowance protection, will see their Lifetime Allowance Excess tax charge fall by up to £16,500. The increase could also increase their tax-free cash by £7,500.

Full state pension will increase from the present level of £159.55 per week, equivalent to £8,296.60 per year to £164.33 a week, or £8,545.50 a year.

The September inflation figures are also used to calculate public sector pension increases. Since 2015 Public Sector Pensions have moved to using Career Average Earnings as opposed to final salary pensions. Some pensions increase this cumulative accrued benefit by more than inflation. Benefits in the Teachers’ Pension increase at CPI + 1.6 per cent, while the NHS Pension increases at CPI + 1.5 per cent, and the Police Pension at CPI + 1.25 per cent.

This means the increase for pensions being accrued will be 4.6 per cent on the Teachers’ Pension, 4.5 per cent for those in the NHS and 4.25 per cent for the Police Pension Scheme.

Retirement Advantage pensions technical director Andrew Tully says: “The latest inflation news really is a double-edged sword. On the one hand key state benefits including the state pension will increase by at least 3 per cent due to the triple lock. Public sector pensions in payment will also increase.

“People saving hard for retirement now have an opportunity to save a little more as the lifetime allowance, basically the overall limit on the value of your pensions before you get hit by an extra tax charge, will also increase by £30,000. This doesn’t sound like a big incentive but anything that helps people who are doing the right thing but are being hit by this arbitrary limit is welcome.

“The sting in the tail though for anyone trying to make ends meet is the seemingly never ending rise in the cost of living. With households needing to find an extra £825 a year to maintain their standing of living.”

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