Wages are outstripping inflation, with the today CPI data from the ONS showing prices rising at 6.7 per cent year-on-year in September.
This means that pensioners look set for an inflation-busting pay rise next year with the state pension rising by 8.5 per cent – in line with average earnings, under the terms of the triple lock.
This will be the second biggest uprating of the state pension, following a 10.1 per cent rise in April this year.
A 8.5 per cent increase to the state pension would give pensioners on the new state pension an extra £900 a year. However while this will be welcomed by many pensioners, the insurance industry say it is likely to put further pressure on politicians to amend the terms of the triple lock.
There has been speculation that the Chancellor may tinker with the triple lock in his forthcoming Autumn Statement – potentially to update the state pension in line with an earning figures that discounts bonus payments. This would still give a generous 7.8 per cent uplift, but would save the Treasury millions.
Hargreaves Lansdown head of retirement analysis Helen Morrissey says: “This news will be welcomed by pensioners who have been struggling during the cost-of-living crisis, but as the second blockbusting increase in a row it does add to the government’s headache as to how much it will cost.
“The wage data has been inflated by one-off bonuses given to NHS workers and civil servants over the summer. If we strip out bonuses the figure is 7.8 per cent.
“The last time wage data was seen to be inflated was during the pandemic, with the government opting to suspend the triple lock and use the inflation figure instead. There is a chance we could see further triple lock tinkering this year with the government looking to manage the eye-watering cost by either opting to go with inflation or potentially taking the wages figure without bonuses.”
Aegon’s pension director Steven Cameron adds: “There are reports that the Government is considering adjusting the earnings growth figure downwards to reflect recent one-off public sector bonuses which have created a ‘distortion’. While trimming it back by up to 1 per cent would save the Government money, it would risk the wrath of the pensioner population ahead of a likely General Election next year.”
Cameron points out this boost to the state pension is particularly large when considered in comparison to current inflation trends.
Standard Life, managing director for retail direct Dean Butler says: “It could be a case of ‘be careful what you wish for!’ as an inflation-busting state pension will only fan the flames of debate around the long-term affordability of the payment.
“It’s also worth considering the possible tax implications for pensioners. The personal allowance, which is the amount of income you can receive before paying tax, has been frozen since 2021/2022 and currently remains fixed in for quite a few years to come. This means that the full state pension payment has grown from 70 per cent of the allowance in 2019/20 to a likely 92 per cent next year, leaving pensioners with only £1,069 of headroom before they begin paying income tax.”