The recent inflation figures released this week show consumer prices rose faster in September, at 3%, than at anytime in the last five years. This is now well above the long term average of 2.5% from 1989 to 2017.
Prices are rising in part because of the rising costs of imported goods due to the pound's fall in value since we voted to leave the EU last June.
September inflation rates are used by the Department for Work and Pensions to set how much pensioners receive from the start of the new tax year in April 2018.
In 2018 I will become eligible for my state pension at the grand old age of 65. The net effect means I will now receive an additional £5 per week next year and a starting pension of £164 per week (£710 per month).
Public sector pensions, such as those paid to teachers, police and NHS staff, will also rise in line with CPI. In addition, the 'lifetime allowance' on private pensions will increase, by £30,000, from April 2018.
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That will mean an individual can have £1,030,000 across their private pensions without facing a tax charge.
According to the OECD, our state pension equates to ~23% of average earnings. This should increase to nearer 30% as more people retire on the new flat rate pensions which started in April 2016. Currently, most pensioners will be stuck on the 'old' system which is much less generous apart from those who are topped up with the means tested pension credits.
Most welfare benefits such as Jobseeker's allowance are frozen until 2020 so they will not see any increase next year. However PIP (disability) and maternity benefits will increase by the 3% from next April.
The continuing rise in inflation is now putting pressure on Mr Carney and the MPC to increase the Bank of England base rate which has remained at a 300 year low since 2009. It currently stands at just 0.25%. I am expecting a rise back to 0.5% maybe as early as next month.
In the US, the Fed have increased their base rate 3 times over the past year from 0.5% to currently 1.25%.
The other financial event will be the Chancellor's budget on 22nd November and speculation of yet more tinkering with pensions and help for the younger generation. No doubt the usual short-term political manoeuvers in response to the poor election result.
Leave a comment below if you are affected by rising inflation.