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The September inflation figures – how this will affect you

In September, the Office of National Statistics (ONS) announced the monthly UK inflation figures. Many people may only pay a passing interest into the monthly inflation rates, however, the September figures affect how the tax and benefit system will look in April 2013.

The Government uses September's Consumer Price Index (CPI ) figure to calculate a range of benefits, such as income tax thresholds, benefit amounts and public sector pensions, which are typically increased each April, in line with the rate of annual inflation measured in the previous September.

The figures highlight that the annual CPI inflation for September fell to 2.2% and Retail Price Index (RPI) to 2.6%. The CPI figure of 2.2% will have the following impact:

  • State pensions: Basic state pension (BSP) should rise by 2.5% next April. This is the result of a government guarantee and would see the state pension increase by at least £2.69 a week.Other state pensions (ie. additional pensions such as S2P, SERPS and graduated pension) will rise by 2.2%.

  • DB pension statutory increases in deferment and in payment will be under the 2.5% and 5% rate caps if the scheme inflation link is CPI.

  • The revaluation factor for accrued DB benefits in annual allowance calculations for 2013/14 will be 2.2%. As earnings are generally growing at a lower rate, this may give a little extra headroom for benefit accrual.

  • Working age social security benefits should rise by 2.2%, where the Government has not already announced that they are being frozen. There have been rumours that the Chancellor may choose a lower rate of increase, in line with earnings for instance.

  • ISA limit - in 2013/14, the ISA investment limit, which is now linked to CPI, should rise to £11,520 (after rounding to nearest £120).

  • CGT annual exempt amount – in 2013/14 should increase to £10,900 (after rounding up to nearest £100) as it is also CPI-linked.

To find out how all this affects you and your financial position, please feel free to get in touch and we’d be happy to review it for you.

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