- Subdued inflation in 2024 means average earnings growth figures for July, due to be published on 10 September, are set to determine the ‘triple-lock’ state pension increase in 2025
- The triple-lock pledge means the state pension will rise by the highest of average earnings growth, inflation or 2.5%
- If the earnings growth figure of 4.5% for April to June is repeated in May to July and inflation in September comes in below this level:
- The full ‘new’ state pension will increase from £221.20 per week (£11,502 per year) to £231.15 per week (£12,020 per year) in April 2025
- The ‘old’ state pension will increase from £169.50 per week (£8,814 per year) to £177.15 per week (£9,212 per year)
- The full state pension will exceed the personal allowance of £12,570 by 2027/28 if the benefit increases by 2.5% per year after 2025 (assuming the personal allowance remains frozen)
- At some point during this Parliament the new government will need to address the thorny question of what the state pension should be worth and when Brits should receive it
Tom Selby, director of public policy at AJ Bell, comments:
“Rachel Reeves’ decision to brutally scale back the Winter Fuel Payment will see millions of pensioners taking a hit of up to £300 later this year. There could, however, be a silver lining coming in April 2025 in the form of a bumper state pension boost if strong recent earnings growth figures are repeated.
“The government’s ‘triple-lock’ pledge means the state pension will rise by the highest of average earnings growth in July 2024, CPI inflation in September this year or 2.5%. If average earnings grow by 4.5% in July, as they did in June, retirees in receipt of the full new state pension will be in line for a state pension boost worth over £500 next year. This would also push the full value of the state pension beyond £12,000 a year for the first time.
“With inflation expected to remain subdued, this will represent a genuine real-terms increase in the value of the state pension for millions of retirees – although whether that quells anger over the Winter Fuel Payment cut remains to be seen.”
What next for the triple-lock?
“Labour committed to maintaining the state pension triple-lock for the entirety of this Parliament in their manifesto, meaning they are unlikely to back away from the pledge over the next five years.
“However, at some point the government will need to address the unanswered question of what exactly the policy, which randomly increases the value of the state pension in real terms depending on the economic environment, is attempting to achieve. In short: how much should the state pension be worth and when should people receive it?
“Policymakers will also be mindful of the state pension tax iceberg that is looming into view, with the full new state pension set to exceed the personal allowance in the coming years. This was the ‘Retirement Tax’ Rishi Sunak warned about during the general election campaign, with millions of retirees just receiving state pension income at risk of being dragged into paying income tax.
“While there are already pensioners who built up entitlement under the pre-2016 system paying income tax on their state pension today, Prime Minister Keir Starmer will doubtless want to avoid the symbolism of the full state pension being subject to income tax.”
