The state pension is likely to rise by more than £500 a year from next April, in a boost for millions of older Britons. The rise is based on wage growth, unless inflation rises sharply in the coming months.
Triple lock and earnings growth
The state pension rises every year in line with the triple lock promise. This guarantees the pension goes up by whichever is higher out of inflation (using the previous September inflation figure), wages (average growth between May and July) or 2.5%.
Figures from the Office for National Statistics (ONS) show average growth, including bonuses, fell to 4.1% in the three months to June. This means unless inflation rises sharply from its current rate of 2.6%, it is the average earnings growth figure which is likely to be used to determine the state pension next April.
Potential increase and tax threshold
If earnings growth next month is unchanged, an increase of 4.1% would add a little over £500 a year to the state pension. The new state pension is currently worth £241.30 a week, and this increase would take it to £251.20.
But former pensions minister Sir Steve Webb warned this will also take the state pension above the tax-free allowance. The new state pension is currently worth £12,547.60 a year, just below the £12,570 personal allowance. The Treasury has announced that income tax will not be charged on people who only receive the state pension.
Sir Steve said: “Unless things change sharply in the next month, those on the new state pension can expect to see an increase of around £500 per year next April. But the sting in the tail is that this will take the standard rate of the new state pension above the tax threshold. We therefore urgently need to know how the government plans to fulfil its pledge to make sure that those wholly dependent on the new state pension will not be charged income tax next year.”
Labour market context
It comes after the number of UK job vacancies fell to its lowest level in more than five years. The ONS said the number of vacancies was down to 707,000, with around 6,000 fewer vacancies between May and July, compared with February to April. The UK’s overall unemployment rate remained unchanged at 4.9% in the three months to June, while the number of workers on payrolls fell by 13,000 between May and June.
