Unless there is a big surge in inflation in the next two months, the state pension will rise by 4.7% next April.
That’s because that’s the rate of the key average earnings figure used for the triple lock calculation.
The ONS today confirmed the increase in average weekly earnings for the period to July was 4.7%. The triple lock means state pensions increase by the highest of inflation, earnings and 2.5%.
The inflation figure which is used will be for the year to September and will be announced in October. It was 3.8% for the year to July with an updated number for August due to be announced tomorrow.
If the state pension does increase by 4.7% it will rise to £12,534 per year, less than a pound a week short of the income tax threshold of £12,570.
It will be followed by a further increase next year of at least 2.5%, which would take the new state pension to at least £12,850 in April 2027, above the expected level of the tax threshold.
Steve Webb, partner at pension consultants LCP, said: “The standard rate of the new state pension is creeping ever closer to the frozen personal tax allowance. Indeed, we know for certain that someone who has no other income aside from the new state pension will be a taxpayer come April 2027. It is already the case that nearly three quarters of all pensioners pay income tax, and the ongoing freeze in tax thresholds coupled with steady rises in the pension will drag more and more into the tax net.”
Andrew Tully, technical services director at Nucleus said the rise “means many more will pay income tax solely as a result of their state pension, given the ongoing freeze to the personal allowance, and Government will need to consider the best process to easily allow these people to pay tax.”
Helen Morrissey, head of retirement analysis, Hargreaves Lansdown, said: “The increase will 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.”
She said that 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.
She added: “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.”
On a weekly basis a full new state pension would rise from its current level of £230.25 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.