The state pension is set to rise from £10,600 to £11,501 in April after wage growth figures between May and July revealed salaries increased 8.5%, data from the Office for National Statistics has shown.
The latest increase equates to a weekly rise from £203.85 to £221.17, while older pensioners who retired before April 2016 will get a weekly rise from £156.20 to £169.47, and an annual rise from £8,122 to £8,812.
It is a result of the triple-lock pension scheme, which ensures pensions rise by the highest of three options – the rate of inflation, average earnings growth or 2.5%.
Wages data jumped 8.5% in total pay (including bonuses) in the year to July 2023, above inflation, which is currently lower.
Alice Guy, head of pensions and savings at interactive investor, said: “The triple lock increase is great news for millions of pensioners, providing a lifeline to many poorer households. One in eight pensioners don’t have any income in addition to the state pension and are completely dependent on the triple lock to help them cover their rising costs.”
Danni Hewson, head of financial analysis at AJ Bell, added that the expected increase will be the first time in almost two years that those receiving the state pension will feel the benefit, as inflation has eaten into the additional cash, leaving people feeling worse off despite an uplift in the amount paid out in each of the past two years.
“Now inflation has cooled enough that those increases will start to make a small difference but with fears that inflation may have another nasty surprise in store and additional pressures from interest rate rises, some households might be forgiven for feeling increasingly weary with the whole shebang,” she said.
Guy also noted that, despite the increases over the past years and the expected uplift in April, the UK state pension is still one of the lowest in Europe, with most other countries implementing a system based on the amount an individual puts into the scheme.
Yet there have been calls to scrap or amend the triple-lock pension scheme, something that the current iteration of the Conservative government has promised it will not do.
Guy said: “The government has a difficult balancing act ahead as it weighs up an increasingly expensive state pension bill, with the needs of pensioners, a significant minority of whom are still living in poverty.
“One option would be to consider using longer-term averages, rather than short-term data to determine the triple lock. This would reduce the risk of the triple lock being skewed by short-term trends.”
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, agreed that the rising state pension would be “welcome” for retirees, but also said it would “continue to be a headache” for the government.
“The prime minister recently refused to be drawn as to whether he would support the triple lock long term though as a general election draws ever closer it would be a difficult pledge to step back from,” she said.
One option is to increase the state pension age, she argued, but this would need to be in-line with people’s ability to keep on working for longer.
“A review of the long-term direction of the state pension and the triple lock’s role should be a priority for whoever wins the next election,” she said.
As well as the government, Hewson argued that the latest increase will cause problems for the Bank of England, which has to reach agreement about the best way to protect the UK economy when it meets next week.
“There’s every indication that interest rates will rise for the 15th time, but then what? High borrowing costs and fears of an economic slowdown are impacting businesses, making them think twice about investing for the future until the present seems more stable,” she said.
“There may be trouble ahead – unemployment has ticked up, the number of self-employment jobs has experienced a record quarterly fall and we’ve seen another record high in long-term sickness levels.
“The labour market has been resilient but there are signs that the stress of the past couple of years has created a few cracks. The fear is that any more pressure might mean those cracks start to crumble.”