WATCH NOW: Liam Halligan explains new inflation figures
Meanwhile, figures released yesterday show total earnings continue to increase at a rate of 7.9 per cent.
According to a pensions expert, the data adds “pressure” to decide whether the state pension triple lock should be adjusted or not.
There’s been speculation the government could opt to increase the payment by a smaller figure, due to the 8.5 per cent being “distorted” by one-off public sector cost of living bonuses.
Steven Cameron, Pensions Director at Aegon, said: “While this ‘real’ earnings growth of over three per cent is good news for those of working age receiving average pay increases, it piles pressure on the Government as it weighs whether or not to honour the triple lock in full next April, with an announcement possibly made as part of the Chancellor’s Autumn Statement.
“The official formula would grant an 8.5 per cent increase, based on year-on-year earnings growth for the May to July period.
“This is further above inflation than we’ve seen in recent months.
“With rumours of the Chancellor having more fiscal headroom than anticipated, the Government may decide to grant the full 8.5 per cent, providing another bumper increase after this April’s highest ever 10.1 per cent. But this is paid for out of the National Insurance of today’s workers and raises real questions around intergenerational fairness.
“There have been reports that the Government is considering adjusting the earnings growth figure downwards to take out the impact of recent one-off public sector bonuses which have created a ‘distortion’.
“While trimming it back to say 7.8 per cent would save the Government hundreds of millions, it risks the wrath of the pensioner population ahead of an almost certain General Election next year.”
How much could state pension rise by?
An 8.5 per cent increase would see the new state pension increase by a “bumper” £901.02 to £11,501.22 a year.
The ‘old’ basic state pension, for those who reached state pension age before 6 April 2016, would rise by £690.40 to £8,812.80.
Mr Cameron warned that with the Government having more than met its target of cutting inflation by half by the end of this year, and the current 4.6 per cent remaining significantly above the Bank of England’s two per cent target, the headline rate could fall even further in the early months of 2024.
He added: “This means there’s a real chance that a state pension increase of 8.5 per cent could be more than double the ruling rate of inflation come next April. That’s unsustainable.
“Whatever the decision for next April, volatile price inflation and earnings growth add to growing concerns that the triple lock in its current form is unsustainable longer term.
“Prior to the General Election, we’re calling on the main parties to make clear their proposals to make it sustainable, reliable, and intergenerationally fair.”
A Department for Work and Pensions spokesperson said: “The Government is committed to the triple lock.
“As is the usual process, the Secretary of State will conduct his statutory annual review of benefits and state pensions using the most recent data available.”