Table of Contents
The state pension is set to rise by £400 a year next April as a result of the triple lock, according to reports.
According to Treasury calculations seen by the BBC, the full state pension is being calculated to rise based on average earnings figures, which the Office for National Statistics will publish next week.
If wage growth remains steady at 4.5 per cent, the state pension would rise by £515 a year. But if it falls again, the increase could be closer to £400, taking the full state pension to around £11,900.
Budget: Chancellor of the Exchequer Rachel Reeves to announce autumn budget on 30 October
The reports emerged weeks after Rachel Reeves revealed that winter fuel payments for pensioners would be subject to a means test, with only those receiving pension credit or certain other benefits eligible.
More than 10 million people will no longer receive winter fuel payments of up to £300 as a result of the changes.
The triple lock on state pensions means they rise each April by the higher of earnings, inflation or 2.5 per cent.
The figures used are ONS earnings growth from May to July, which will be confirmed next week, and inflation in September, which will be confirmed in October.
Barring an unexpected rise in inflation, the biggest of these three factors is expected to be growth in average incomes, but the government is due to confirm this once all the figures are in.
The Treasury is working on the basis that there will be an increase based on profits, according to the BBC.
Its report said the full state pension would rise to around £11,900, an increase of 3.4 per cent, but investment platform AJ Bell said if pay growth remains steady at 4.5 per cent, there could be a bigger increase of £515 to £12,020.
He said the government appeared to be modelling its figures on falling wage growth.
Liz Kendall, the Secretary of State for Work and Pensions, will make a decision on raising state pensions before the Autumn Budget on 30 October.
If this is the case, the new full state pension for men born after 1951 and women born after 1953 will rise to £12,000 next year and in 2026, after a further increase to £900 in 2023.
Pre-2016 retirees who may be eligible for the secondary state pension could benefit from a £300-a-year increase.
The state pension is paid each month to pensioners who have reached the required age and have paid sufficient National Insurance contributions.
On Monday, Rachel Reeves reaffirmed the Government’s support for the triple lock until the end of this Parliament.
Decision: Work and Pensions Secretary Liz Kendall to make decision on state pension increases
Tom Selby, director of public policy at AJ Bell, said: ‘Labour committed to maintaining the triple lock on state pensions for the entirety of this Parliament in its manifesto, meaning it is unlikely to deviate from the promise over the next five years.
‘However, at some point the government will have to address the unanswered question of what exactly the policy of randomly increasing the value of the state pension in real terms depending on the economic environment is intended to achieve.
Bottom line: How much should the state pension be and when should people receive it?
He added: “Policymakers will also be aware of the looming state pension tax iceberg, with the new full state pension set to outstrip the personal allowance in the coming years.
‘This was the “Retirement Tax” that Rishi Sunak warned about during the general election campaign, with millions of pensioners receiving only state pension income at risk of being dragged into paying income tax.
‘While there are already pensioners who built up entitlements under the pre-2016 system and who now pay income tax on their state pension, Prime Minister Keir Starmer will no doubt want to avoid the tokenism of the full state pension being subject to income tax.’
Currently, the full “new” state pension is £11,502 per year and the “old” state pension is £8,814 per year.
SAVE MONEY, EARN MONEY
Boosting investment
Boosting investment
5.09% cash for Isa investors
Cash Isa at 4.92%
Cash Isa at 4.92%
Includes 0.88% bonus for one year
Free stock offer
Free stock offer
No account fees and free stock trading
4.84% cash Isa
4.84% cash Isa
Flexible ISA now accepting transfers
Transaction fee refund
Transaction fee refund
Get £200 back in trading commissions
Affiliate links: If you purchase a product This is Money may earn a commission. These offers are chosen by our editorial team as we believe they are worth highlighting. This does not affect our editorial independence.
Some links in this article may be affiliate links. If you click on them we may earn a small commission. This helps us fund This Is Money and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationships to affect our editorial independence.