Retired civil servants in line for 7pc income boost next year – twice as much as workers

The higher payouts come even as inflation and worker wages are predicted to fall

Retired civil servants are in line for an income boost of nearly 7pc next year – as inflation and worker wages are predicted to fall. 

The rate of inflation is set to drop from 7.9pc to only to 6.9pc by September, the Bank of England has estimated, with this figure being the measure used to set increases for public sector pensions and the state pension.

However, inflation is set to decrease by half to 3.4pc by the time the increase kicks in from April next year. And while private sector wage growth accelerated by 7.7pc by May 2023, in real terms, earnings have fallen as they have been outpaced by spiralling inflation. 

The rate of wage increases is projected to slow down to around 6pc by the end of this year, with the increase in weekly earnings falling further to 3.5pc in 2024, according to recent forecasts by the Bank of England.

The Tory triple lock on state pensions means that its payout is also rising in line with inflation. The policy ensures that the state pension doesn’t fall in real terms, meaning that the amount paid increases annually by inflation rate, growth in earnings or a flat 2.5pc, whichever is highest.

This has largely protected pensioners from inflation, while the bill is footed by the taxpayer. Public sector and state pensions previously increased by 10.1pc in April this year, the biggest rise on record, after the rate of inflation recorded in September 2022.

Under the Bank of England’s predictions, the increase to state pensions will add a tax burden of around £6.2bn annually, according to pension provider Canada Life, unless the increase in average earnings begins to outstrip inflation. The annual uplift to public sector pensions would cost the taxpayer a further £3.1bn.

The state pension currently costs the treasury £124.3bn, with forecasted increases set to see that rise to almost £133bn, according to Standard Life, the pensions provider.

It comes as interest rates were raised to a 15-year high of 5.25pc on August 3, with Bank of England governor Andrew Bailey having claimed last month that “unsustainable” wage rises were to blame for the previous hike to 5pc in June.