"Whilst an above-inflation increase of £460 will be welcomed, only the further £210 represents a real increase. And this is before allowing for the income tax which most pensioners will pay on their state pension rise."
- Steve Webb, partner at pension consultants LCP and former pensions minister
Today’s labour market data shows that average earnings in the three months to July 2024 rose by 4.0% - likely the figure used to determine the increase in the State Pension next April.
The Triple Lock means that the State Pension increases each April by the highest of 2.5%, September's inflation statistic, or average earnings between May and July.
As a result, the State Pension is set to increase by £460 a year, rising from £11,502 to around £11,962.
However, industry experts say an above inflation 4% uplift in the State Pension in April 2025 is likely to be overshadowed by the loss of winter fuel allowance for 10 million pensioners. 10 million pensioners are expected to lose out on the winter fuel payment of between £100 and £300.
In addition, with most pensioners paying tax, and more than half next year’s rise simply keeping pace with inflation, most pensioners will still be worse off overall in real terms if they lose the winter fuel payment.
Simon Kew, head of market engagement at Broadstone, commented: “With inflation back below 2.5%, the earnings figure looks likely to trigger this year’s Triple Lock and deliver a £460 a year boost to the State Pension.
“It follows on from two substantial increases of 10.1% and 8.5% over the past two years meaning the State Pension is set to rise to £11,962 a year from next April. While this will cushion the blow to many following the means-testing of winter fuel payments, the coming increase to energy bills and sustained rises in the cost of living since the pandemic will still be squeezing pensioners’ budgets.
“Questions around the long-term sustainability of the State Pension are only likely to intensify as the bill to the Chancellor of the Exchequer increases amid an expanding pensioner community.”
Kate Smith, had of pensions at Aegon, said: “The latest earnings figures show an increase of 4%. This is highly likely to be above the September inflation figure published next month – the latest figure is 2.2%. This means that the State Pension is almost guaranteed to increase by 4% next April. This increase is still well above inflation so a boost to purchasing power of pensioners. But while the above inflation increase is likely to be around £460, for those on the full new State pension, this will be cold comfort to those who lose the winter fuel allowance.
“For someone on the full new State Pension of £221.20 a week, this would equate to an increase of £8.85 to £230.05 a week, or £11,962.50 a year. For those who reached State Pension age before 6 April 2016 and who are on the full basic State Pension of £169.50, the increase could be around £6.78, bringing them to £176.28 a week - £9,166.56 a year. A little known rule is that any earnings-related element of the State Pension, relating to the pre-April 2016 rules, and top ups, are only increased in line with the rate of inflation and not the triple lock. So some will find their overall State Pension increase lags behind the 4% figure.”
Steve Webb, partner at pension consultants LCP and former pensions minister, agreed: “Part of next April’s increase is simply to keep pace with rising prices. Based on the current inflation figure of 2.2%, the new state pension would need to rise by just over £250 simply for pensioners to stand still. Whilst an above-inflation increase of £460 will be welcomed, only the further £210 represents a real increase. And this is before allowing for the income tax which most pensioners will pay on their state pension rise. Those who lose £200 or £300 in Winter Fuel Payments will therefore still be worse off in real terms next April.”
Jon Greer, head of retirement policy at Quilter, added: "With income tax thresholds frozen, some pensioners relying solely on the state pension may soon be in the absurd position of needing to pay a portion of it back in income tax. Pensioner receiving the full new state pension now only need an extra income of £607 a year before their personal allowance is used up in full.
"As the government’s upcoming pension review examines the adequacy of both state and private pensions, this could be the moment for a balanced, long-term strategy that aims to get cross-party support. A consensus on the appropriate level of the state pension and a fair mechanism for maintaining its value over time is essential to prevent annual increases from becoming political flashpoints.
"While the 4% increase is positive for pensioners, the broader conversation on the triple lock’s future must continue. The upcoming review may be key to finding a sustainable path forward that depoliticises the process and ensures fairness across generations."
