The full new state pension looks likely to increase by almost £9 to £230 a week from next April – equating to £11,962 a year – as a result of the “triple lock”, the latest wage growth figures have suggested.
The above-inflation rise, which represents a £460-a-year increase, will need to be confirmed by the government. It could help take some of the heat off ministers after Keir Starmer’s widely criticised decision to axe winter fuel payments in England and Wales for all but the poorest pensioners.
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, this guarantees that the state pension (both the basic and the new state pension) will rise by whichever of these three key figures is the highest:
inflation, based on the consumer price inflation (CPI) figure for September of the previous year;
the average increase in wages during the May to July period of the previous year; or
2.5%.
How many people get the state pension?
There are almost 12.7 million state pensioners, according to the latest Department for Work and Pensions figures, and almost three-quarters of them are on the old basic state pension.
To get this, you need to be either a man born before 6 April 1951, or a woman born before 6 April 1953.
If you were born after those dates, you will claim the new state pension instead.
The full basic state pension is now £169.50 a week, while the full rate of new state pension is £221.20 a week.
The government says it is not possible to make direct comparisons between the two payments. Under the old basic state pension 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 now have a pretty good idea of what will happen.
On Tuesday, figures from the Office for National Statistics showed that for May to July this year, annual growth in earnings was 4%. (As is often the case with official data, it is possible that this figure could undergo a small revision next month.)
The September inflation figure is due to be released on 16 October, but it is not expected to exceed 4%. UK inflation was 2.2% in July, and many economists expect the September figure to come in at just over 2%.
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A 4% increase would lift the full basic state pension to £176.30 a week, or £9,167 a year, a rise of £353.60. It would lift the full new state pension to £230.05 a week, or £11,962.60 a year.
The final decision on a pension increase is expected to be made by the secretary of state for work and pensions, Liz Kendall, before the budget on 30 October, though it is possible it could be announced as part of the budget itself.
The former pensions minister, Steve Webb, now a partner at the consultancy LCP, said that part of next April’s increase “is simply to keep pace with rising prices”. He added: “Based on the current inflation figure of 2.2%, the new state pension would need to rise by just over £250 simply for pensioners to stand still.
“While an above-inflation increase of £460 [a year] will be welcomed, only the further £210 represents a real increase. And this is before allowing for the income tax which most pensioners will pay on their state pension rise. Those who lose £200 or £300 in winter fuel payments will therefore still be worse off in real terms next April.”
Is the triple lock popular?
In recent years there has been a great deal of discussion about the affordability and fairness of the triple lock.
Critics argue that it is “unfair” because many older people enjoy higher standards of living than younger people may expect to enjoy 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, according to a House of Commons Library research briefing document.
Organisations including the Institute for Fiscal Studies have argued that the triple lock is unsustainable and makes planning the government’s finances tricky because the various components are difficult to forecast.
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 pension schemes that older people were often 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 retirement provision beyond the state pension when they come to retire.
Could the triple lock be ditched?
It would appear unlikely, with the government already facing a battle over its decision to scrap the winter fuel allowance for all but those pensioners on the lowest incomes who claim pension credit.
However, the chancellor, Rachel Reeves, recently said the triple lock will remain in place until the end of this parliament.