State pension on course to rise above £13,000 next year
Millions of pensioners are in line for another increase under the triple lock after wage growth was recorded at 3.9%, potentially taking the full new State Pension above £13,000 a
By The Guardian
The full new State Pension is on course to rise above £13,000 a year from next April after the latest official wage figures revealed earnings growth of 3.9%.
Figures from the Office for National Statistics show total average earnings, including bonuses, increased by 3.9% in the three months from May to July compared with the same period a year earlier.
That figure is important because it is one of the measures used to determine the annual State Pension increase under the government’s triple lock.
The triple lock guarantees that the basic and new State Pension will rise each April by whichever is highest: average earnings growth, September’s inflation rate or 2.5%.
If 3.9% proves to be the highest of those three measures, the full new State Pension would increase from its current £241.30 a week to approximately £250.71.
Over 52 weeks, that would be worth around £13,037 – an increase of almost £490 a year.
However, the final increase is not yet confirmed.
September’s Consumer Prices Index inflation figure still needs to be published. If that comes in above 3.9%, inflation rather than earnings would determine next April’s State Pension increase.
The latest earnings figures nevertheless provide pensioners with a much clearer indication of the minimum increase they are currently likely to receive.
They also create an unusual tax issue because the full new State Pension is on course to exceed the standard income tax personal allowance.
The personal allowance currently stands at £12,570, meaning somebody can normally receive income up to that amount before becoming liable for income tax.
It has been frozen at that level until April 2031.
A full new State Pension of approximately £13,037 would therefore be around £467 above the current personal allowance.
The government has previously said pensioners whose only income is the basic or new State Pension will not be required to pay small amounts of tax through Simple Assessment if their pension exceeds the personal allowance.
However, the position is different for pensioners who have additional taxable income.
People receiving workplace or private pensions, earnings, rental income or other taxable income may find that increases in the State Pension use more of their tax-free allowance.
The effect of frozen tax thresholds alongside rising pensions is therefore becoming increasingly important for retirees with several sources of income.
The latest figures also show that wage growth across the wider economy is slowing.
Total earnings growth fell to 3.9%, while regular earnings excluding bonuses increased by 3.5%.
The triple lock has become an increasingly significant part of government spending because it guarantees pension increases of at least 2.5% even when both inflation and earnings growth fall below that level.
Supporters argue that the policy protects pensioners against increases in living costs and prevents the value of the State Pension falling behind wages.
Critics have questioned its long-term cost and whether guaranteeing pension increases in this way remains sustainable as Britain’s population ages.
For pensioners planning their finances, however, the immediate question is September’s inflation figure.
Unless that exceeds the 3.9% earnings figure, the full new State Pension is on course to rise above £13,000 a year from April 2027.