This will partially make up for this year’s blow when the triple lock was suspended and pensioners were handed a pay rise of just 3.1 percent. They would probably have received 8.3 percent in line with earnings growth if the mechanism had remained in force.
Former Chancellor Rishi Sunak’s decision to suspend the triple lock for one year has ravaged the value both of the old and new State Pensions.
It caused fury among pensioners, with inflation set to hit 13.3 percent in October, according to Bank of England forecasts.
The triple lock increases the State Pension either by inflation, earnings or 2.5 per cent, whichever is greatest.
As consumer price growth rages, the inflation element is likely to determine what pensioners get in April 2023, based on September’s figure.
Last week, we warned that pensioners could see their incomes fall behind inflation.
While inflation was 10.1 percent in the year to July and hit 11 or 12 percent in September, the major increase will come just one month later in October.
That is when the energy price cap jumps from £1,971 a year to £3,549, driving up gas and electricity bills by more than 80 percent.
In practice, energy bills are likely to rise even faster, as the nights draw in and colder weather arrives.
That forces everybody to spend more time indoors, while using extra gas and electricity to heat and light their homes.
Forecasters Citibank have warned that inflation will hit 18 percent early next year, with Goldman Sachs then predicting a staggering 22 percent.
That would have left pensioners trailing badly, as April’s pay rise would have been based on September’s much lower inflation figure.
Now there is good news.
Ms Truss announced her Energy Price Guarantee that will cap typical energy bills at £2,500.
Ms Truss also suspended green energy levies that are added to bills, saving around £150 for each household.
Everybody will also benefit from next month’s £400 energy bill cut.
These emergency measures will not just save households a small fortune, but also slash the inflation rate by around 5 percent, Truss said.
Before the announcement, ING’s economist James Smith said the “blanket price cap” would reduce the depth of a winter recession, and mean inflation has already more-or-less peaked.
He said that another positive result would be that “January’s inflation rate would be roughly six percentage points lower”.
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If Smith is correct, that is good news news for pensioners. Instead of taking off like a rocket in October, the month after the triple lock mechanism figure was set, the annual inflation figure is likely to start FALLING instead.
This means that in the restored triple lock mechanism will actually work in favour of pensioners.
They could see the State Pension rise by double digits from next April, while inflation will hopefully be on the run.
Any celebrations are likely to be muted, though, as they will still be paying the price of Sunak’s triple lock suspension for the 2022/23 tax year.
That has cost them up to £486 in lost State Pension, which will never be recovered.
It will also reduce the State Pension for good, by setting lower baseline for all future increases.
But at least Ms Truss finally delivered some long-awaited good news for pensioners yesteday.
Read More: State pension to see inflation-busting increase as Truss energy plan knocks 5% off prices |