Steven Cameron, Pensions Director at Aegon, explains what today’s 4.5% earnings growth figure could mean for next year’s State Pension Triple Lock after millions to lose out on winter fuel allowance.
“The latest official average earnings figures (including bonuses) show an annual increase of 4.5%, compared to 5.7% a month ago. While not yet certain, this gives the best indication yet of by how much the state pension will increase next April under the Triple Lock, which the Labour Government has confirmed will remain in place. The lower increase announced this month is because of a one-off bonus paid to NHS staff last June which will also suppress the figure announced next month.
“Under the Triple Lock, State Pensioners receive an annual increase equal to the highest of price inflation, earnings growth, or a minimum rate of 2.5%. With the latest inflation figure sitting at 2%, even if we see modest increases in coming months, it’s highly likely that the increase will be based on earnings growth.
“The specific figure used for determining the Triple Lock is the year-on-year increase in earnings for the period ending May to July 2024, which will be published next month in mid-September. Barring any big fluctuations when July’s earnings figures are added in, this suggests State Pensioners may receive around a 4.5% increase. The June 2023 NHS one-off bonus will also affect the May to July 2024 calculation, which will be a disappointment to state pensioners who might otherwise have received a higher increase.
“For someone on the full new state pension of £221.20 a week, this would equate to an increase of £9.95 to £231.15 a week. For those who reached state pension before 6 April 2016 and who are on the full basic state pension of £169.50, the increase could be around £7.63 bringing them to £177.13 a week.
“However, this comes after the Chancellor announced that those not entitled to means tested Pension Credit will no longer be entitled to the winter fuel allowance. This is expected to see around 10 million pensioners above the income threshold losing out on at least £200 this winter, with some facing larger losses. While next April’s state pension increase is likely to be higher than current inflation, any increase in ‘real’ terms will be significantly dented by the loss of the winter fuel allowance.
“An increase of 4.5% would bring the full yearly new state pension to £12,061 a year. This makes it increasingly likely that the state pension could soon be above the threshold for paying income tax, which remains frozen at £12,570 until April 2028. If the state pension rises by another 4.3% in April 2026, those with no other income on top of their state pension would be facing an income tax bill. While initially of a tiny amount, this would cause stress for state pensioners and an administration challenge for HMRC to collect it.
“The Triple Lock may be safe for the next 5 years, but the Government is clearly looking for ways to balance the nations finances. It recently announced it would not take forward a new deal on social care funding, planned by the previous Government, which would have capped how much an individual needs to pay for eligible care costs at £86,000 rather than many facing an unlimited bill.”
