The full new state pension looks likely to increase by almost £11 to £241 a week from next April – equating to £12,534 a year – as a result of the triple lock, the latest wage growth figures suggest.
The inflation-busting 4.7% or £560-a-year rise will need to be confirmed by the government. It is likely to reignite debate about the affordability of the triple lock, and poses questions about the standard tax-free personal allowance, which stands at £12,570.
What is the triple lock?
The UK state pension increases in April each year based on a system known as the triple lock.
Introduced in 2011 by the coalition government, it guarantees that the basic and new state pensions will rise by whichever of three figures is the highest:
How many people get the state pension?
There are almost 13.1 million state pensioners, according to Department for Work and Pensions figures issued in August.The majority, 8.4 million, are on the old basic state pension.
To get this, you need to be a man born before 6 April 1951 or a woman born before 6 April 1953.
People born after those dates claim the new state pension.
The full basic state pension is £176.45 a week, and the full new state pension £230.25.
The government says it is not possible to make direct comparisons between the two payments. Under the old system, people can receive extra money from the state based on their national insurance (NI) contributions. They could qualify for the “additional state pension” – known as the state earnings-related pension scheme (Serps), or state second pension – for the years they paid the full rate of NI. This payment could be worth in excess of £200 a week on top of the basic state pension, the government has said.
What is the rise from next April?
It’s not 100% confirmed, but we have a pretty good idea of what will happen.
Figures from the Office for National Statistics on Tuesday show the annual growth in earnings was 4.7% for May to July this year. As is often the case with official data, this figure may undergo a small revision next month.
The September inflation figure will be published next month, but it is not expected to exceed 4.7%. It was 3.8% in July and is forecast to remain unchanged in August when those figures are released on Wednesday.
A 4.7% increase would lift the full basic state pension to £184.75 a week, or £9,607 a year. It would lift the full new state pension to £241.05 a week, or £12,534.60 a year.
The government is expected to make a final decision on the pension increase before the budget on 26 November.
Is the triple lock popular?
There has been a great deal of discussion about the affordability and fairness of the triple lock in recent years.
Critics say it is unfair because many older people enjoy a higher standard of living than younger people may expect to in the future, and believe it is not right to expect the younger generation to subsidise older people’s incomes to such an extent via the triple lock.
Organisations including the Institute for Fiscal Studies have argued that the triple lock is unsustainable and makes planning government finances tricky because the various components are difficult to forecast.
The Office for Budget Responsibility said in July that the triple lock had already cost about three times more than initially expected and suggested it was unaffordable in the long term.
Supporters of the triple lock say it is vital for maintaining the value of the state pension, particularly for future pensioners, many of whom do not have access to the generous workplace schemes that many older people were able to join and are not saving enough for their retirement, in part because of cost of living pressures.
Surveys have shown that many current workers do not expect to have any provision beyond the state pension when they retire.
Could the triple lock be ditched?
The work and pensions secretary, Pat McFadden, confirmed on Tuesday that the government was committed to maintaining the triple lock for this parliament. That echoes previous pledges by other ministers.
The head of policy at the financial services consultancy Broadstone, David Brooks, said however that debate over the future of the triple lock was likely to intensify.
“Increasingly the debate appears to be framed as triple lock or nothing when it comes to increasing the state pension,” he said. “But most would consider it fair that the state pension should increase, and the government has repeatedly committed to it for the remainder of this parliament.”
He said the debate should be about whether the increase was dictated by an earnings link or an inflation link, and should be a priority.
Steve Webb, a former pensions minister and partner at the consultancy firm LCP, said the annual standard rate of the new state pension was “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,” he said.
“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.”