The state pension is set for a bumper boost in April as today's inflation reading confirms that the triple-lock uprating will be determined by the 8.5% wage growth figure.
Under the triple lock guarantee, the state pension goes up in line with wage growth (as measured in the three months to July), inflation (September's CPI reading), or 2.5% – whichever is higher.
The consumer prices index measure of inflation stuck at 6.7% in September, unchanged from August. This is below earnings growth of 8.5%.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
“Today’s inflation reading is the final part in the triple lock puzzle and puts pensioners on course for an 8.5% increase in state pension next year,” says Helen Morrissey, head of retirement analysis at the wealth manager Hargreaves Lansdown.
“Inflation has remained stubbornly high but has come off its double-digit heights to remain at 6.7% in September. However, wages data has remained red hot with average wages, including bonuses, hitting 8.5% during the relevant period.”
We look into how much the state pension could go up by, and what the triple lock could cost the government.
How much will the state pension rise by?
If the state pension goes up by 8.5% in 2024-25, it means the full new state pension will rise to £221.20 per week from £203.85, while the full basic state pension will rise to £169.50 a week from £156.20.
This adds up to £11,502 per year for those receiving the full new state pension, compared to the current £10,600.
“The triple lock increase is great news for millions of pensioners, providing a lifeline to many poorer households,” says Alice Guy, head of pensions and savings at the investment platform Interactive Investor.
“One in eight pensioners don’t have any income in addition to the state pension and are completely dependent on the triple lock to help them cover their rising costs. Women are particularly likely to rely solely on the state pension, especially if they are on their own, as many have taken time out from the workplace, which makes it harder to build up a workplace pension."
It's worth keeping in mind the UK still has one of the lowest state pensions in Europe.
The government is expected to confirm whether it is honouring the triple lock, and the exact increase to the state pension later in the autumn.
Could the state pension rise by a different amount?
There is speculation the government could exclude bonuses from earnings growth - giving a figure of 7.8% - and use that instead of the full 8.5%.
The Treasury could argue that NHS bonus payouts inflated July’s wages.
Tom Selby, head of retirement policy at the investment platform AJ Bell, comments: “This would allow the government to claim it has stuck with the triple-lock pledge while saving some cash, although it would inevitably face accusations of a stealth attack on pensioner incomes."
A more drastic move would be to axe the earnings element of the triple lock. This would mean the state pension rises by 6.7%, in line with September’s CPI inflation figure. The full new state pension would then increase to £217.50 per week, or £11,310 a year, in April.
Ditching an element of the triple lock isn’t without precedent – the Treasury did this in 2022/23, when earnings spiked significantly.
However, experts agree it’s unlikely the government would tinker with the triple lock and risk losing votes before a general election.
Selby adds: "There is every chance we will go into the general election with all major political parties committing to the triple lock in their respective manifestos. While this might be good news for pensioners in the short term, it will mean the debate over what the state pension should be worth and when it should be paid to people is kicked down the road again."
Cost of the triple lock to rise to £45bn?
The sustainability of the triple lock has repeatedly been called into question due to the cost it poses to the government. Research from the Institute of Fiscal Studies (IFS) found that increases to the state pension could cost taxpayers up to £45bn a year by 2050.
The triple lock “generates considerable uncertainty for the future level of public spending on the state pension”, the IFS said.
By 2050, state pension spending could rise by anywhere between £5bn to £45bn a year in today's terms, the IFS added. “This range is so large because of the uncertainty over the path of the state pension that the triple lock creates."
Currently, the state pension age is predicted to rise to 68 by 2040. But if the cost of the state pension continues to increase at such a rapid rate, the government could push this higher.
-
M&S and Tesco among those warning of a £7bn Budget hitSeventy-nine UK retailers have written to Chancellor Rachel Reeves about possible price rises and job cuts - here is what it means
-
How much does it cost to move home under the Labour government?Home-moving costs are rising and could get more expensive once stamp duty thresholds drop in April 2025
