The state pension is set for an inflation busting rise of more than £500 a year from next April under the Government’s triple lock pledge.
The 4.7% rise was almost guaranteed today with the publication of earnings figures for the May to July quarter - used as one of the benchmarks for uprating the full state pension.
Under the triple lock guarantee, the state pension increases every April in line with whichever is the highest of total earnings growth in the year from May to July of the previous year,inflation in September of the previous year, or 2.5%.
The latest figures from the Office for National Statistics (ONS) showed a rise in total wage growth including bonuses to 4.7% in the quarter to July, up from 4.6% in the three months to June.
It is highly unlikely that the rate of CPI inflation will be higher than 4.7% when the September figure is published next month.
It will mean pensioners entitled to the full state pension can look forward to £563 rise in April taking the state pension to £12,535, only a whisker below the personal allowance for income tax of £12,570.
David Brooks, head of policy at leading independent financial services consultancy Broadstone, said: “The good news for millions of pensioners is that they will receive hundreds of pounds more income every year at a time when many still face persistent cost-of-living pressures and depend heavily on the State Pension as their main income.
“At a time of strained public finances, however, the rising cost of funding this benefit will once more come under scrutiny especially given the ongoing State Pension Age Review.
“Debate over the future of the triple lock itself, means-testing or alternative funding, such as via the introduction of a national insurance contribution of some kind, is likely to intensify.”
Pat McFadden, the Work and Pensions Secretary, confirmed the Government’s election manifesto promise on the pensions triple lock would be honoured.
He said: “This Labour government is committed to maintaining the triple Lock for the course of this Parliament.
“It is estimated that will mean a rise in the state pension of around £1,900 a year by the end of the Parliament.
“That’s a commitment from the Labour government to the UK’s pensioners.”
Hargreaves Lansdown said that based on a rise of 4.7%, this would see a full new state pension increase from its current level of £230.25 per week to £241.05 per week from April.
Those retiring on the basic state pension would see their weekly income increase from £176.45 per week to £184.75.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, warned the increase in the state pension would put many pensioners close to the threshold for paying income tax.
She said: “If they receive the 4.7% uplift it takes their annual state pension to around £12,535 per year which leaves them just a whisker under the threshold of paying basic rate tax.”
Former Liberal Democrat pensions minister Sir Steve Webb, who is now a partner at consultants LCP (Lane Clark & Peacock), said: “The standard rate of the new state pension is creeping ever closer to the frozen personal tax allowance.
“Indeed, we know for certain that someone who has no other income aside from the new state pension will be a taxpayer come April 2027.
“It is already the case that nearly three quarters of all pensioners pay income tax, and the ongoing freeze in tax thresholds coupled with steady rises in the pension will drag more and more into the tax net.”
Ms Morrissey cautioned that next April’s pension increase would “add further pressure on the Government who are battling an already burgeoning state pension bill”.
She said: “The Government has committed to keeping the triple lock in place for the rest of this Parliament but longer term its future could be uncertain.
“With a review into state pension age also ongoing, other options could include an extension of the current timetable with dates for state pension age running into the late 60s and beyond.”
This is likely to be the number used for next year’s uprating of the State Pension under the triple lock pledge. It will mean pensioners can look forward to £563 rise in April taking the state pension to £12,563, only a whisker below the personal allowance for income tax of £12,570.
