State pensioners could be on track for another bumper boost to their pensions next April, following a sharp jump in the latest earnings figures, but this, warn commentators, could see the Bank of England continue to raise rates.
According to the Office for National Statistics, annual growth in regular pay excluding bonuses was 7.8% in April to June 2023, the highest annual growth rate since records began in 2001. Meanwhile, annual growth in employees’ average total pay, including bonuses, was 8.2% between April and June, overtaking the latest inflation figure of 7.9%. The figure was partly affected by one-off bonus payments made by the NHS in June.
Experts say pensioners will be watching the figures with interest. Under the current triple lock guarantee, state pensions are increased every April by the highest of earnings growth, price inflation or 2.5%.
The earnings growth figure used is the year-on-year increase for the period May to July, published mid-September. The inflation figure used is the year-on-year increase until September, published in mid-October.
Steven Cameron, pensions director at Aegon, said: “If the earnings growth figure announced next month stays at this level, this guarantees state pensioners 8.2% next April, even if inflation continues to fall.
“The triple lock has come under intense scrutiny in recent years because of the volatility in earnings growth during the pandemic, and more recently because of sky-rocketing inflation, which reached double figures late in 2022 and has remained stubbornly high.”
In April 2023, particularly high inflation meant state pensioners received a double digit increase of 10.1%. A 8% increase in the full new state pension next April would see it rise from the current £203.85 a week to £220.15 a week, an increase of almost £850 a year.
Cameron added: “If earnings growth remains above price inflation in the coming months, state pensioners may be winners, particularly as they are less likely to be affected by rocketing mortgage costs and could also be benefitting from higher interest rates on cash savings.”
Adrian Lowery, financial analyst at Evelyn Partners, warned that the sharp rise in wages could hinder a drop in inflation and add to the debate whether the triple lock is sustainable.
Lowery said: “This above-expectations wage growth will be watched nervously at the Treasury as it threatens to add fuel to the triple lock fire. While the consumer prices index for July is widely expected to show a fall in the headline annual inflation rate, there are fears that subsequent months could reveal a plateau or even a tick back up in the rate.
“The inflation reading for September, or a possibly even-more racy wage growth figure, will determine what could be a very substantial rise in the state pension and reignite the debate over whether the triple lock is sustainable.”
Lowery said the cost of the state pension is already expected to outweigh combined spending on education, policing and defence in the next two years and a further bumper year for pensioners could intensify the squeeze on public finances.
But while pensioners face a substantial rise to their state pension next year, experts noted that consumers continue to face hardship.
Richard Carter, head of fixed interest research at Quilter Cheviot, commented: “The Bank of England will be studying the data carefully, but even if inflation falls following a drop in energy prices, the inflationary pressure of still rising wage growth means the Bank is unlikely to put a halt on further rate rises just yet.
“What’s more, even if inflation does come in lower than wage growth, very few people will feel any real benefit. Rising mortgage rates and high everyday costs continue to put a strain on personal finances, particularly as lower inflation will take some time to feed through to the prices people are paying.”
