With average earning growth figures for July set to be published next week, all eyes will be on how these figures will shape next year’s state pension.
Under the terms of the current triple lock pledge, the state pension will rise in line with whatever is highest: inflation, average earning growth or 2.5%.
Following a subdued period for inflation in 2024, retirees will be keen to see if the 4.5% earnings growth between April and June is repeated.
Tom Selby, director of public policy at AJ Bell, said: “If average earnings grow by 4.5% in July, as they did in June, retirees in receipt of the full new state pension will be in line for a state pension boost worth over £500 next year.”
Indeed, such a growth would result in the full ‘new’ state pension for April 2025 rising to £231.15 per week or £12,020 per year, up from the current £221.20 per week (£11,502 per year).
For those who retired before April 2016, the ‘old’ state pension will increase to £177.15 per week or £9,212 per year, up from £169.50 per week (£8,814 per year).
“With inflation expected to remain subdued, this will represent a genuine real-terms increase in the value of the state pension for millions of retirees,” Selby added.
This serves as a silver lining following Rachel Reeves' decision to scale back the Winter Fuel Payment later this year, expected to cost pensioners over £300.
While predictions of a rise in state pensions is reassuring, Selby noted that at some point the government will be forced to reconsider the sustainability of the current approach to the triple lock.
Indeed, if the personal allowance of £12,570 remains frozen, the state pension will soon outpace the allowance, leaving many pensioners potentially subject to income tax.
Selby said: “At some point, the government will need to address the unanswered question of what exactly the policy, which randomly increases the value of the state pension in real terms depending on the economic environment, is attempting to achieve.”
“In short: how much should the state pension be worth and when should people receive it?”