The triple lock means state pensions increase each April by the highest of September’s inflation figure, yearly earnings growth for the period May to July, or 2.5%. The latest CPI inflation figure (published 20 August) is 3.8% for the 12 months to July, having increased from 3.6% (June) and 3.4% (May). The latest earnings growth figure, for April to June, was 4.6%, having decreased from the previous two periods’ figures of 5.0% (Mar-May) and 5.4% (Feb-Apr). Depending on how things change in the next two months, state pensioners look like they’re in for an increase of between 4.2% and 4.6%.
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Steven Cameron, Pensions Director at Aegon, comments: “Today’s inflation figures take us one step closer to knowing how much of an increase state pensioners will receive next April under the triple lock. The rate of inflation has been rising over the last 3 months, now sitting at 3.8%, compared to 3.4% and 3.6% in the last two periods. At the same time, the rate of increase in average earnings has been slowing in recent months, with the latest figure sitting at 4.6%, down from 5.4% and 5.0% for the last 2 periods.
“The triple lock pays out an increase of the highest of price inflation, earnings growth, or 2.5%. The inflation figure used is for the year to September, with the data published on 15th October. The key earnings growth figure is the year-on-year increase for the period May to July, due to be published on 16th September. So trends over the next month or two could be significant for state pensioners.
“If inflation and earnings growth remain at their current levels, the triple lock would pay out based on earnings – so a 4.6% increase. If the recent trends continue, and inflation rises by 0.2% in each of the next 2 months, the key inflation figure would be up to 4.2%. Similarly, if earnings growth reduces again by 0.4% next month, the key earnings figure would also be 4.2%, making for a 4.2% increase. In any case, there’s a good chance the triple lock could produce an increase of 4.2% or more. This would mean those on the full new state pension would see it increase from £11,973 this year to £12,475 next year.
“The personal allowance for income tax purposes has been frozen at £12,570 until April 2028, with speculation the freeze might be extended in the Autumn Budget. While someone whose sole income is the full new state pension will be below the threshold next year and escape paying income tax, that will change the following year. With the triple lock paying a minimum of 2.5%, the full new state pension is certain to be above the personal allowance for the 2027/28 tax year, creating an income tax liability for those even with no other income. While the tax due will be very small, this will cause concern to many pensioners and an admin nightmare for HMRC. It may be that the Government will introduce some form of exemption specific to affected state pensioners, although this could be seen as unfair if it didn’t apply to those of working age too.”
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