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Strong wage growth could be set to deliver a boost of more than £400 to pensioners’ pockets, reports suggest.
The Treasury’s internal working calculations, reportedly seen by the BBC, revealed the state pension could be boosted as a result of April’s triple lock.
Changes would take the full state pension to around £12,000 in 2025/26, after the £900 increase in 2023.
Pre-2016 retirees who may be eligible for the secondary state pension could see a £300 per year increase.
The report comes amid a backlash over the Government’s decision to ditch the winter fuel allowance for the majority of households.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “For many pensioners, this increase will need to be offset by the removal of the winter fuel payment.
“Only those on Pension Credit will now receive it, and this will amount to a gap of up to £300 this winter. This will be especially keenly felt by older pensioners on the basic state pension. They receive the largest amount in winter fuel payment, but will see a smaller increase in their state pension, as they’re not on the new flat rate.”
She added: “The timing of the rise is also unhelpful for pensioners struggling to make ends meet over the winter. The promise of a spring boost will bring cold comfort to those who are making difficult decisions about whether they can afford to heat their homes in the colder months.”
The new state pension system was introduced in 2016 to provide a sustainable, clear foundation pension for people to build their private savings.
Under the triple lock system, the state pension rises each April in line with the highest out of Consumer Prices Index (CPI) inflation in September the previous year; average earnings growth in the year from May to July of the previous year; or 2.5%.
The most recent Office for National Statistics (ONS) figures show that CPI inflation was 2.2% in the 12 months to July 2024. Prices are rising at a slower rate than in 2022 and 2023, when households and businesses were being squeezed during the peak of the cost-of-living crisis.
With inflation running at a more subdued level, the measure of wage growth could deliver the reported £400 boost.
Jon Greer, head of retirement policy at wealth manager Quilter, said: “The news reported today that the triple lock is likely to be uplifted by average earnings next year, with confirmation expected from next week’s average total pay figure, is a significant development for pensioners.”
He said the triple lock “remains a contentious issue in pension policy, with no government willing to make drastic changes due to the potential backlash from a core voter base.
“Given recent changes to winter fuel payments which spurred immediate calls for a rethink due to the number of people who will struggle to pay their bills this winter as a result, any alterations to the triple lock by Labour seem entirely remote and more so given (Chancellor) Rachel Reeves’ recent confirmation that it would stick by the policy.”
Any decision on a pension increase will be made by Work and Pensions Secretary Liz Kendall ahead of October’s Budget.
Analysis released last week revealed only around half of people receiving the new state pension last year were getting the full weekly amount – and around 150,000 were on less than £100 per week.
Royal London said that 1,737,342 of 3,407,567 people receiving the new pension received the full weekly amount last year.
It made the calculations using Department for Work and Pensions data from spring 2023.
The full state pension for 2024/25 is £221.20 a week, up from £203.85 last year.
Labour committed to maintaining the state pension triple lock for the entirety of this Parliament in their manifesto, meaning they are unlikely to back away from the pledge over the next five years— Tom Selby, AJ Bell
Tom Selby, director of public policy at AJ Bell, said: “Labour committed to maintaining the state pension triple lock for the entirety of this Parliament in their manifesto, meaning they are unlikely to back away from the pledge over the next five years.
“However, 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?
“Policymakers will also be mindful of the state pension tax iceberg that is looming into view, with the full new state pension set to exceed the personal allowance in the coming years. This was the ‘retirement tax’ Rishi Sunak warned about during the general election campaign, with millions of retirees just receiving state pension income at risk of being dragged into paying income tax.
“While there are already pensioners who built up entitlement under the pre-2016 system paying income tax on their state pension today, Prime Minister Keir Starmer will doubtless want to avoid the symbolism of the full state pension being subject to income tax.”
