Expats saving for retirement and drawing the state pension are the biggest winners from the latest spike in the cost of living.
Inflation has hit a five-year high of 3% for the year to September– up from 2.9% in August and the peak since April 2012.
This means that Chancellor Phillip Hammond should dole out some generous increases in inflation-linked pensions in his Autumn Budget 2017 in November.
That’s because the index-linked rises are all based on September’s inflation rate.
Expat retirement savers will see the lifetime allowance of £1 million jump by £30,000.
Pensions set to rise
The lifetime allowance is the limit on how much anyone can save into a UK pension. The cap was dropped to £1 million in April 2016, but then Chancellor George Osbourne announced the allowance would rise in line with inflation from April 2018.
Expats with QROPS pensions are unaffected. Although incoming cash from a UK pension is tested against the lifetime allowance, once in a QROPS, no cap on growth applies.
Expat state pensioners should also see their retirement cash rise 3% from April 2018.
The maximum flat rate pension will go up from £159.55 a week (£8,296.60 a year) by £4.78 to £164.33 (£8,545.49 a year).
The old state pension will rise from £122.30 a week (£6,359 a year) by £3.66 to £125.96 (£6,550.38 a year).
Interest rate hike to follow?
Financial experts argue the Chancellor should scrap the lifetime allowance as the cap serves no real purpose other than to penalise high-earners.
“We continue to see this limit as a penalty for those who have invested wisely,” said Nathan Long, a pension analyst at financial firm Hargreaves Lansdown.
“With an annual contribution limit of £40,000 or lower for some higher earners, the LTA serves little purpose and should be done away with altogether.”
Meanwhile, Bank of England governor Mark Carney expects inflation to peak before Christmas and then start to fall towards the target of 2% – but fears that ideal rate of the cost of living won’t be reached for at least three years.
He also warned higher than desired inflation could see a wage squeeze for some time yet and that a small interest rate rise could be on the way.