State pension set for huge increase – pensioners could get over £11,000 a year
The state pension could rise in line with the earnings element on the triple lock
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UK wages grew at a record annual pace of 7.8 per cent between April and June, the highest annual growth rate since comparable records began in 2001.
The new figures, published by the Office for National Statistics (ONS) today, have fuelled speculation the state pension could rise by the average earnings metric of the triple lock rather than inflation.
UK inflation has eased but remains relatively high at 7.9 per cent in the year to June.
Meanwhile, average earnings growth has been on an upward trend, boosted as public sector pay deals, including one-off payments, are reflected in the final figures.
A seven per cent rise would push the full new state pension up to more than £11,400 a year
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Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “Given how high inflation has been in recent months it’s tempting to think that that will be the figure used for the triple lock calculation for the state pension this year.
“However, average wages have also remained incredibly robust with data this morning showing annual growth in average pay (including bonuses) was a whopping 8.2 per cent.
“This has been skewed by one-off bonus payments made to the NHS, but it is creeping skyward and with inflation expected to fall over the coming months then this could be the figure to watch."
The average wage figure published in September is the one used in triple lock calculations, while the September inflation figure, published in October, is used for the inflation metric.
Ms Morrissey added: “We may not see the eye-wateringly high increase in state pension that we saw last year (10.1 per cent) but something in the region of seven per cent is not out of the question.”
A seven per cent rise would push the full new state pension up to more than £11,400 a year.
An 8.2 per cent increase would see it rise to around £11,470.
Ms Morrissey said: “This would be welcomed by pensioners who have been battling rising costs but adds to the woes of government trying to find a way to tame spiralling state pension costs.
“As the system continues to creak under pressure it’s time for a review of how the state pension works and the triple lock’s role within it.”
Steve Webb, partner at LCP, said: “It seems very likely that the pension rise implied by the triple lock policy will be much higher than expected at the time of the March 2023 Budget.
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The Secretary of State will conduct his statutory annual review of benefits and state pensions in the autumn
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“Although inflation is coming down, the rate of average earnings growth has been heading upwards and is likely to be the key factor in determining next year’s state pension rise.
“An extra £2billion bill arising from higher than expected earnings growth seems quite plausible. But it is unlikely that this would lead the government to break the triple lock, especially in the run-up to a likely 2024 General Election”.
However, whilst it is expected that CPI inflation will fall sharply by the time the September CPI is published, earnings are not on track to fall.
The OBR assumed a 6.2 per cent rise within the Economic and Fiscal Outlook 2023, published alongside the March 2023 Budget.
According to LCP, if average earnings growth were to be around 8.2 per cent when next month’s figures are published, it would suggest the Treasury would need to find an extra £2billion for the triple lock.
A Department for Work and Pensions spokesperson said: “As is the usual process, the Secretary of State will conduct his statutory annual review of benefits and state pensions in the autumn, using the most recent prices and earnings indices available.”