Pensioners are on course for a bumper 4.8% rise in the State Pension next year as a result of the triple lock guarantee.
Inflation figures from the Office for National Statistics released on Wednesday showed inflation stayed at 3.8% for the third month in a row in September.
Under the triple lock guarantee, the State Pension increases each year in line with the highest of three figures: inflation, average wage growth or 2.5%.
As a result, the State Pension will rise in line with the average earnings figure which was 4.8%, meaning pensioners are set to receive £12,547.60 from next April, up from £11,973 currently.
However, it also means that the pension will be within spitting distance of the personal tax threshold of £12,570.
Claire Trott, head of advice at St. James’s Place, said: “This rise is something of a double-edged sword. While the boost will be welcomed by many, it also pushes the new State Pension to just below the personal allowance, and risks nudging many more people into paying tax on any other additional income they have.
“As a result, someone with other income of £10,000 will effectively only see an increase in their take home income of just shy of 2.3% due to the additional taxation, which could result in unexpected tax bills for unassuming pensioners.”
Meanwhile, Steven Cameron, director at Aegon, says the rising figures may put pressure on the Government to reconsider the triple lock.
“While the Labour Government did commit to retain the triple lock, we do still need to wait for formal confirmation of the increase by the Secretary of State for Work and Pensions. We’re fast approaching the Autumn Budget, with the Chancellor already signalling difficult decisions ahead.
“The Chancellor has continually emphasised she wants to support ‘working people’. And as the State Pension is ‘pay as you go’ rather than funded, it’s today’s workers through taxes and National Insurance who pay for today’s state pensions. Every 1% increase in the State Pension costs around £1.1bn a year for all future years.
“While today’s pensioners are yesterday’s working people, if the Government decides to prioritise support for those currently working, could that mean a scaled back triple lock from next April?”
David Brooks, head of policy at Broadstone, also warned that the 4.8% rise will raise questions about fairness and sustainability.
“While wage growth is a more defensible measure than inflation or the arbitrary 2.5% floor, the triple lock mechanism still lacks coherence. It guarantees pension increases even when economic conditions don’t justify them, and risks entrenching intergenerational inequality.
“A system that links pensions to earnings – or even broader economic growth – would be more equitable and better aligned with the realities facing working households, ensuring that generations are dealing with the current economic pressures together.
“We need a more balanced and targeted approach to pension policy – one that supports those in genuine need without placing unsustainable burdens on the public purse or younger generations. Reforming the triple lock should be part of that conversation.”
