Pensioners could enjoy a pensions boost of £460 next April thanks to wage growth and triple lock rules.
Under the triple lock arrangement, the state pension goes up automatically by either 2.5%, inflation, or average wage growth - whichever is higher.
Official data published on Tuesday (10 September) shows that annual wage growth, including bonuses, increased by 4% for the three months to July.
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This suggests the new full state pension is set to increase by £460 next April, based on the latest wage figures.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, says: “It’s a much smaller increase than those we’ve seen in recent years, but remains comfortably above inflation, so will give retirees some much-needed breathing space in budgets."
However, the increase will be offset by the removal of the winter fuel payment for millions of pensioners, worth up to £300 this winter. n July, the government announced that the benefit would be means-tested. To qualify, retirees will need to claim Pension Credit.
Morrissey says the loss of winter fuel payment "will be especially keenly felt by older pensioners on the basic state pension. They receive the largest amount in winter fuel payment, but will see a smaller increase in their state pension, as they're not on the new flat rate".
How much state pension will I get in 2025?
We’ll have to wait a little longer for confirmed figures. The final decision on the state pension uprating will be made by pensions secretary Liz Kendall ahead of the Budget next month.
However, Labour has repeatedly pledged its commitment to the triple lock, so we are not expecting any surprise announcements about changing the policy.
The full new state pension is currently worth £221.20 a week - or £11,502 a year. The new state pension is paid to men who were born after 1951 and women born after 1953.
If the annual payment rose by £460 in April, it would increase to £11,962.
Will I have to pay tax on my state pension?
If the state pension hits £12,000 next April, it will be just under the tax-free personal allowance (£12,570).
Morrissey notes that this is "perilously close to the limits of the personal allowance". The allowance is expected to be frozen at £12,570 until 2028, meaning "there’s every chance we could see the state pension become taxable in the near future", according to Morrissey.
However, due to complexities in the state pension system, some retirees already pay tax on their state pension income.
The pension consultancy LCP estimates that more than one in five of all pensioners have state pensions in excess of the personal allowance, with about 2.5 million pensioners paying tax on their state pension.
Of course, the state pension isn’t the only income most pensioners receive. Most people pay into a workplace pension over the course of their working life, while others may have a private pension or SIPP.
This means some pensioners are already paying a significant amount of income tax – and the burden is growing thanks to the effects of fiscal drag.
Will we see any changes to the state pension in the Budget?
Labour has promised to conduct a large-scale pensions review as part of this parliament, but we don’t yet know if this will affect the state pension, or the tax rules that govern workplace and personal pensions. Further details are expected in Rachel Reeves’s first Budget on 30 October.
Labour has already chosen to mean-test the winter fuel payment, and there is speculation it could also means-test the state pension in a bid to save money.
Morrissey notes that "the rumours will cause an enormous amount of worry, because the state pension forms a vital part of pensioner incomes".
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