Triple lock: State pensions must increase each year based on the highest of inflation, average earnings growth or 2.5 percent.
Older people could benefit from a £500 increase in their annual state pension, which will rise to £12,000 next spring.
The full, fixed state pension will rise to £231 a week if earnings growth remains at 4.5 per cent for another month.
The state pension is increased each year by the highest of inflation, average wage growth or 2.5 percent under the triple lock commitment to pensioners.
The Labour government promised during the recent election to maintain the triple lock throughout the current parliament.
The key figure for wage growth used in the calculation corresponds to total pay, including bonuses, in the three months to July, and is published in mid-September.
The preliminary CPI inflation figure is taken from September and published in October.
Earnings growth was 4.5 percent this month, and if it remains around this level it will determine the increase in state pensions because inflation is around 2 percent.
The current full state pension is £221.20 a week, after pensioners won an 8.5 per cent increase last April.
People who retired before April 2016 on the old basic state pension currently receive £169.50 a week. A 4.5 per cent increase for them would equate to a £400 rise to £9,200, or around £177 a week.
Those who have this lower rate also get significant top-ups, called S2P or Serps, provided they were obtained at an early age.
Meanwhile, the Government’s plan to scrap the Winter Fuel Payment for most pensioners will be put on hold ahead of the next state pension increase in the spring.
Payments currently available to all pensioners will be restricted to those who apply for pension credit or certain other benefits.
Around 10 million pensioners could lose the benefit, which is worth between £100 and £300 a year.
Steven Cameron, Aegon’s pensions director, says the latest 4.5 per cent pay growth figure gives the best indication yet of the rise in state pensions next April.
The figure was down from 5.7 per cent last month, which he said was due to a one-off bonus paid to NHS staff in June 2023, which will also remove the figure next month.
‘With the latest inflation figure at 2 percent, even if we see modest increases in the coming months, the increase is very likely to be based on earnings growth.
‘This comes after the Chancellor announced that those who are not entitled to the means-tested pension credit will no longer be entitled to the winter fuel benefit.
‘While next April’s state pension increase is likely to be higher than current inflation, any increase in ‘real’ terms will be significantly affected by the loss of the winter fuel subsidy.’
Cameron points out that a flat annual state pension of just over £12,000 a year puts her just below the threshold for paying income tax, which will remain frozen at £12,570 until April 2028.
‘If the state pension rises by another 4.3 per cent in April 2026, those with no other income apart from their state pension will face an income tax bill.
‘While this is initially a small amount, this would cause stress for state pensioners and an administrative challenge for HMRC in collecting it.’
Helen Morrissey, head of retirement research at Hargreaves Lansdown, said: “Pay growth remains strong, so it’s highly likely that next month’s figure will be the one used to update the state pension under the triple lock.”
She says an increase of more than £500 a year will be welcomed by pensioners still coming out of the cost of living crisis.
But he added: “With many still reeling from the news that their Winter Fuel Payment will be removed, it won’t be the boost many had hoped for.”
‘There is another looming challenge: frozen tax thresholds mean the new full state pension is edging ever closer to taxable territory and a similar rise next year could push it over the edge.
“With these freezes in place until 2028, there’s a good chance we’ll see retirees who rely solely on the state pension find that part of it is going to the taxman.”