UK Labour market data published by the Office For National Statistics (ONS) shows that average wage growth (including bonuses) hit 4.7% between May to July.
This is a key figure in the triple lock formula which dictates how much state pension is uprated by each year. The triple lock aims to uprate state pension by whichever is highest of 2.5%, average wages and inflation each year. The inflation data released next month will be the final piece in the triple lock puzzle.
Helen Morrissey, head of retirement analysis, Hargreaves Lansdown, comments: “State pensioners look on course to get an 4.7% uplift in their state pension next year as average wage growth remained robust. Such an increase would see a full new state pension rise from its current level of £230.25 per week to £241.05 per week from April. Those retiring on the basic state pension would see their weekly income increase from £176.45 per week to £184.75.
“However, the hike is not yet set in stone. We are awaiting the final piece of the triple lock puzzle – September’s inflation data to be published next month and if this surpasses 4.7% then we could see an even bigger increase. However, given that inflation currently sits at 3.8% it seems likely that wage growth will be the key figure here.
“This causes some degree of complexity for pensioners. Those on the new state pension will receive the uplift but those on the basic state pension will only receive it on their main state pension. Any further top ups such as the state second pension are usually uprated in line with inflation instead, so they won’t get the full benefit of the triple lock on their entire payment.
“For those on the full new state pension, it’s also worth saying that if they receive the 4.7% uplift it takes their annual state pension to around £12,535 per year which leaves them just a whisker under the threshold of paying basic rate tax.”
Helen concludes: ” The increase will also add further pressure on the government who are battling an already burgeoning state pension bill. The government has committed to keeping the triple lock in place for the rest of this Parliament but longer term its future could be uncertain.
“With a review into state pension age also ongoing other options could include an extension of the current timetable with dates for state pension age running into the late 60s and beyond. However, consideration also needs to be given to the issue of healthy life expectancy and the reality that while we may be living longer this does not necessarily mean that everyone can continue to keep working. The state pension forms the backbone of people’s retirement income, and many people simply cannot afford to retire without it.”