The state pension is based on September’s inflation figure, as measured by the retail prices index (RPI), but is guaranteed to be no less than 2.5 per cent.
The Office for National Statistics (ONS) announced today that RPI fell to -1.4 per cent in September, a fall from -1.3 per cent in August, meaning the state pension will rise by 2.5 per cent in April 2010.
The marginal increase will see pension payments rise from £95.25 a week to £97.65 from April 6, the start of the new tax year. Although this might look good on paper, experts have warned that future price increases could cancel out any benefits.
John Ball, head of defined pension consulting at Watson Wyatt, the actuary, said: “Ironically, the measure of inflation used to up rate state pensions ignores spending by the pensioners who most rely on them, and inflation is still positive if you focus on the things they buy. Vat going back up in the new year will also exert upwards pressure on prices.”
Consumer groups are also concerned by the increase. Rob Tolan, head of policy and research at Elizabeth Finn Care, said: "While we welcome the rise in the state pension above the level of inflation, we are not convinced that this will serve to alleviate much of the suffering being experienced by pensioners in poverty.
"While inflation in the main has decreased, council tax and utilities - two of the biggest costs facing pensioners - are likely to rise beyond the 2.5 per cent being offered in April."
The ONS said the consumer prices index (CPI), another key measure of inflation, fell to 1.1 per cent in September, its lowest level in five years, but experts predict that inflation will rise again in the coming months.
James Knightley, economist at ING, said: "This is only a temporary move lower. Clothing prices and petrol prices jumped and we suspect that these components have further to rise."