Retirees to receive another above-inflation state pension bump

The state pension will increase by more than inflation for the second year in a row as a result of strong wage growth.

Average earnings increased by 4 per cent in the year to July 2024, according to figures released today by the Office for National Statistics. Thanks to subdued inflation, which came at 2.2 per cent in July, the state pension is also likely due a 4 per cent increase from April 2025.

The triple lock mandates that the state pension rises every year in line with whichever is the highest between average annual earnings growth from May to July, inflation in the year to September or 2.5 per cent.

A 4 per cent increase would boost the new state pension by more than £460 a year, taking it from £221.20 a week or £11,502 a year to £230.05 a week or £11,963 a year. It’s the second year in a row that the state pension goes up in real terms. Last year it increased by 8.5 per cent, also in line with wage growth.

Rachel Vahey, head of public policy at AJ Bell, argued that the government’s commitment to the triple lock may help “redeem” it in the eyes of UK pensioners. “The government is coming under more intensive pressure to ‘u-turn’ on its controversial decision to axe the winter fuel payment for all pensioners, except those who claim pension credit,” she noted.

The triple lock is likely to push the state pension over the personal allowance of £12,570 in the next few years if this continues to stay frozen, potentially resulting in pensioners having to pay back a portion of it in income tax. The government will face difficult decisions on this in the future, as well as on the economic sustainability of the triple lock.

However, Jon Greer, head of retirement policy at Quilter, noted that “this politically charged area might be one difficult decision too many for Labour this early in their tenure”. “The challenge lies in ensuring the state pension remains fair and adequate without widening the generational divide,” he added.