The state pension is expected to rise by just 15 per cent over the next five years – just half the increase pensioners have enjoyed over the past five years, figures hidden in the fine print of the Government’s official forecasts reveal.
Pensioners breathed a sigh of relief as Chancellor Rachel Reeves renewed her promise to maintain the triple lock on state pensions until the end of this parliament when she presented her first budget last Wednesday.
This valuable guarantee ensures that payments increase by the maximum of inflation, wage growth or 2.5 percent. It is crucial to ensure that pensioners’ incomes do not fall behind those of workers or the rising cost of living each year.
This means more than 12 million pensioners will receive a £470-a-year increase in their state pension next April, equivalent to 4.1 per cent, as wage growth figures have outpaced inflation by 1, 7 percent over the past year. The full state pension is on track to rise to £11,973.
Pensioners breathed a sigh of relief as Chancellor Rachel Reeves renewed her promise to maintain the triple lock on state pensions until the end of this parliament.
But pensioners are in for a tough few years of growth as a series of record increases in state pensions have come to an end, forecasts from the Office for Budget Responsibility show.
Between now and 2029, the state pension should rise by 15 per cent to £254.42 a week, or £13,230 a year.
This is bad news for those who rely on the state pension, which notoriously pays the least of any developed country, according to the Organization for Economic Co-operation and Development’s (OECD) leading economic think tank.
Over the past two years, the new state pension has increased by a staggering 19.5 per cent and since 2019 it has increased by 31.2 per cent. Weekly payments of the new state pension have increased from £168.60 a week in 2019 to £221.20 this year, paying an extra £2,735 a year. Over a 20-year retirement, this adds up to an additional £54,700.
Pensioners have received bumper increases in state pensions over the past two years, with payments increasing by 8.5 per cent this year and 10.1 per cent in 2023. Pensioners have been protected from the worst of inflation rampant during the cost of living crisis and received the delay. increase in wages in a double increase.
But those expecting similar increases in coming years will likely be disappointed.
The state pension will increase by only 6.67 percent over the next two years.
Inflation, which has already fallen to 1.7 percent in the year to September, is expected to remain below 2.6 percent through 2029.
Similarly, real wage growth is forecast to fall to 1.2 per cent before recovering to 2.2 per cent over the next three years, according to OBR forecasts used by the Government.
This means the state pension is expected to rise by 2.6 percent in April 2026 and by the minimum guarantee of 2.5 percent in 2027 and 2028.
Next April’s increase has already been confirmed at 4.1 percent, reflecting the annual growth in earnings, including bonuses, between May and July this year.
Pensioners receiving the new full state pension and who have reached state pension age since 2016 will see their weekly earnings increase by £9.05 to £230.25, or £11,973 a year.
For older pensioners receiving the full basic state pension, the increase will result in an extra £6.80, up to £176.30 a week, or £9,167.60 a year. Not only will pensioners receive smaller state pension increases, but hundreds of thousands will also face a tax bill on their income for the first time.
This means that part of the annual increases will be recovered by the Treasury in the form of taxes.
Raising the state pension by just one percentage point adds another £100m to the pensions bill, according to former Pensions Minister Sir Steve Webb.
As early as 2027, the state pension will exceed the income tax threshold, which has been frozen at £12,570 until 2028.
That will mean anyone receiving the full state pension will pay tax on anything they receive above that figure, even if they have no other income.
Next year’s £470 rise alone will push hundreds of thousands of pensioners into paying tax for the first time, experts warn.
The Chancellor confirmed on Wednesday that the Government will maintain the triple blockade for the duration of this parliament.
But their maintenance is becoming increasingly expensive as the pensioner population continues to increase.
Raising the state pension by just one percentage point adds another £100m to the pensions bill, according to former pensions minister Sir Steve Webb, who is now a partner at consultancy firm LCP.
Next year’s rise will add £1.9bn to the Treasury’s annual pension bill, official figures show.
The Isle of Man is considering scrapping the beloved triple lock amid fears that otherwise the island’s state pension fund will soon be depleted.
A report into the sustainability of the Isle of Man National Insurance Fund has set out options to replace it.
Actuarial forecasts for 2022 warned the fund could be depleted in 2047-48, partly due to the number of pensioners claiming state pensions for longer.
Treasury Secretary Alex Allinson has since said there needs to be a “national conversation” on the issue. Any changes would only affect those who reached state pension age after April 5, 2019.
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