The state pension increase for next year is expected to be lower than previously anticipated, potentially affecting millions of pensioners in the UK. New wage growth figures suggest the triple lock hike could be downgraded by around £11.50 a month, or £138 annually. The state pension rises each year by the highest of inflation, earnings growth, or 2.5%.
With inflation currently around 2%, earnings growth over the three months from May to July has fallen to 4.5%, down from 5.7%. This drop is likely to impact the 2025 state pension increase. A 4.5% rise would bring the full new state pension to £12,019 annually, £138 less than the £12,157 expected with a 5.7% increase.
Helen Morrissey from Hargreaves Lansdown explained that the fall in wage growth figures is due to NHS workers receiving large one-off bonuses last June, which are not repeated this year.
Pension rise concerns for pensioners
The lower-than-expected increase is a concern for pensioners already struggling with cost-of-living pressures.
Steven Cameron from Aegon warned that any increase would be offset by the loss of winter fuel allowances, further straining pensioners’ finances. An estimated 400,000 more pensioners are set to be hit with a “retirement tax” next year due to the state pension increase. With the personal allowance unchanged at £12,570, a 4.5% rise in the state pension could push more pensioners into paying income tax for the first time.
Sir Steve Webb from LCP stated, “An increase of 4.5% in the state pension could easily bring around 400,000 more pensioners into income tax for the first time. This is more people who may have to deal with HMRC or face end-of-year tax demands for a relatively small amount of money.”
The Conservative Party had promised to increase retirees’ personal allowance in line with the triple lock, ensuring pensioners “never pay tax on their state pension income.” However, Labour has not matched this pledge, leading to warnings that pensioners will face the consequences. The final state pension increase will be confirmed next month when July’s wage growth figures are published.
While a more modest increase could make the triple lock more sustainable in the long term, it remains a significant blow for pensioners already dealing with financial challenges.
- Express.”State pension blow for millions as triple lock hike downgraded by £11.50 a month”.
- Telegraph.”‘Retirement tax’ to hit 400,000 more pensioners”.
- GBNews.”Pension alert as 400,000 older Britons to be hit with retirement tax ‘for the first time'”.