The latest earnings figures give pensioners the “best indication yet” of what they can expect of next year’s state pension triple lock increase, say industry experts.
The average earnings figures, including bonuses, show an annual increase of 4.5%, compared to 5.7% a month ago. While not yet certain, Aegon pensions director Steven Cameron said the figure gives a good indication of how much the state pension will increase next year.
Under the current Triple Lock guarantee, state pensioners receive an annual increase equal to the highest of price inflation, earnings growth or a minimum rate of 2.5%. With inflation now sitting at 2%, even if it edges up slightly in coming months, it is highly likely that the increase will be based on earnings growth, with the specific figure used for determining the Triple Lock the year-on-year increase in earnings for the period May to July 2024.
Cameron said: “Barring any big fluctuations when July’s earnings figures are added in, this suggests State pensioners may receive around a 4.5% increase. The June 2023 NHS one-off bonus will also affect the May to July 2024 calculation, which will be a disappointment to state pensioners who might otherwise have received a higher increase.”
For someone on the full new state pension of £221.20 a week, a 4.5% increase would result in a pension income of £231.15 a week. For those who reached state pension age before 6 April 2016 and who receive the full basic state pension of £169.50, the increase will take their pension to £177.13 a week.
However, Cameron said it comes after the Chancellor announced that those not entitled to means tested Pension Credit will no longer be entitled to the winter fuel allowance. The move is expected to see around 10 million pensioners above the income threshold lose out on at least £200 this winter, meaning any increase in ‘real’ terms will be significantly dented by the loss of the winter fuel allowance.
Cameron also warned that a 4.5% increase in pension, which would bring the full yearly new state pension to £12,061 a year, makes it increasingly likely that the state pension could soon rise above the threshold for paying income tax, which remains frozen at £12,570 until April 2028.
He added: “If the state pension rises by another 4.3% in April 2026, those with no other income on top of their state pension would be facing an income tax bill. While initially of a tiny amount, this would cause stress for state pensioners and an administration challenge for HMRC to collect it.”
Helen Morrissey, head of retirement analysis at Hargreave Lansdown, echoed the sentiment.
“Wage growth remains robust so it’s highly likely that next month’s figure will be the one used to uprate state pension under the triple lock. Such a rise will be welcomed by pensioners still emerging from the cost of living crisis. However, with many still reeling from the news that their winter fuel payment is to be taken away, it won’t be quite the boost that many hoped for.
“There’s another looming challenge. Frozen tax thresholds mean that the full new state pension is creeping ever closer to tax paying territory and a similar rise next year could see it surpass it. With these freezes in place until 2028, there’s every chance we could see pensioners solely reliant on the state pension finding part of it is making its way to the taxman.”
