CPI-linked pension to rise by £2.95

Money in pensioner handThe basic state pension will rise by less than £3 a week next year after inflation for September was recorded at 2.7%.

It is expected to go up to £113.10 from the current rate of £110.15, starting next April.

The annual increase is linked to September's rate of Consumer Prices Index (CPI) inflation but campaigners say it will scarcely help pensioners facing steep energy price hikes.

Gas and electricity supplier SSE announced an 8.2% rise in tariffs last week, prompting fears that the rest of the Big Six energy companies would follow suit.

It is estimated that the rise in the pension would have been around £3.50 if the increase had still been linked to the Retail Prices Index (RPI), a separate measure of inflation that currently stands at 3.2%.

This higher measure is used to calculate increases in business rates collected by the Government as well as rail fares but no longer when working out basic pensions.

A "triple-lock" guarantees that state pensions will increase by the higher of inflation, average earnings or a minimum of 2.5%. But wage growth, last recorded at 1.1%, is far off this figure.

Dot Gibson, general secretary of the National Pensioners' Convention, said the decision to change from RPI to CPI after the 2010 election had robbed older people of a proper increase in their pensions.

"Many older people are struggling with the rising costs of living and our pensions are simply not keeping pace.

"Pensioners will now feel let down by the so-called 'triple lock'. It might serve the Treasury, but it doesn't serve Britain's pensioners. Many will feel it's no longer worth the paper it's written on."

Saga spokesman Paul Green said of the £2.95 rise: "With energy companies announcing the latest round of price increases, that won't heat many homes for long."

Meanwhile, the Treasury calculates that the 2.7% inflation figure means a decision to cap some benefit rises at 1% - including jobseeker's allowance and child benefit - instead of linking them to CPI will save the taxpayer £1.5 billion a year in 2014/15.

Most of the benefits included were subjected to the cap from April this year but child benefit will be included from next year.

Nida Ali, economic adviser to the EY ITEM Club, said: "This is good news for the Chancellor, as it implies that the Government's current expenditure bill will be somewhat lower than the OBR (Office for Budget Responsibility) expects."

Elsewhere, the British Retail Consortium calculated that the RPI-linked rise in business rates would cost retailers an extra £242 million per year, risking shop closures and jeopardising nearly 20,000 jobs.

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