The State Pension is set to rise by 8.5% next April, thanks to new earnings figures that affect the government’s pension triple lock.
The Office of National Statistics (ONS) published new data revealing that annual growth in employees’ average pay between May and July (including bonuses and one-off payments) reached 8.5%.
This means that – assuming inflation does not exceed 8.5% this month, which it most likely won’t – the State Pension should increase by this percentage in April. However, the government hasn’t committed to using the 8.5% figure for the next State Pension increase. The Chancellor Jeremy Hunt is expected to confirm the next rise in the Autumn statement on 22 November.
If the rise is in line with wage growth, this translates to an extra £691.60 a year or £13.30 a week for those on the full basic State Pension, or an extra £902.20 a year (£17.35 a week) for those on the new State Pension (that is, anyone who reached the State Pension age after April 2016).
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “We always thought inflation would be the key factor when it came to the triple lock, but soaring wages look set to outstrip it, with annual wage growth of 8.5%.
“Such an increase will be welcomed by pensioners, who have gone through difficult times this year as the cost of living continues to lay waste to our finances. However, it will continue to be a headache for the government who need to battle the ever spiralling cost of the state pension bill.
“Increasing state pension age is one lever the government can pull to manage these costs, but this needs to be balanced with people’s ability to keep on working and people need certainty of when they will receive their state pension to help them plan.”
How does the pension triple lock work?
The pension triple lock is a guarantee set up by the government that is designed to ensure that State Pension growth keeps up with rising prices or increases in working people’s earnings.
Every April, the State Pension increases by either 2.5%, the rate of inflation from September the previous year, or the rate of earnings growth from September the previous year – whichever figure is highest.
The earnings growth figure for this month was announced as 8.5%, which puts it well above 2.5% and most likely above inflation as well. Last month’s inflation figure was 6.8%, and this month’s – due out next week – is likely to be even lower following a series of interest rate increases which are helping dampen consumer spending. This means the earnings growth figure will almost certainly be the highest of the three, and therefore the figure that is used in next April’s State Pension increase.
Becky O’Connor, director of public affairs at PensionBee, said: “The state pension forms a large proportion of most people’s retirement income – some people have nothing else at all in old age. It’s vital that older people are kept out of poverty and that their incomes rise by enough to continue to meet basic living costs.
“While there is a case to review the triple lock and make sure it is working as it should, its purpose – to ensure older people are at least able to eat and heat their homes, must be honoured.”
You can read more about how the triple lock works in our article What is the pension triple lock?
You can learn everything you need to know about the State Pension in our guide How the State Pension works.
If you rely on the State Pension as your sole source of retirement income and are finding it hard to keep up with costs, we have a few articles that may be of use to you. You can learn about the benefits that you may be entitled to in our article Over 60s benefits: Understanding your entitlements, as well as some other resources in our article 26 sources of support if you receive benefits or are on a low income.
If you’re considering getting professional financial advice, Aviva is offering Rest Less members a free initial consultation with an expert to chat about your financial situation and goals. There’s no obligation, but if they feel you’d benefit from paid financial advice, they’ll go over how that works and the charges involved.