Record UK wage growth is set to see the state pension increase by 8.5%, rising from £10,600 to a projected £11,501 in April 2024.
Total pay including bonuses rose by 8.5% in the three months to July, according to new data from the Office for National Statistics (ONS).
Pensioners who retired before April 2016 will witness a weekly rise from £156.20 to £169.47, while their annual income will rise from £8,122 to £8,812.
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The main reason for this increase is the triple lock.
What is the pensions triple lock?
The triple lock guarantees that the state pension rises every year in line with inflation, wage growth or by 2.5% — whichever is highest.
This is based on wage inflation between May and June and CPI inflation in September (announced in October).
This year wage inflation has been higher, so that's the big factor.
Alice Guy, head of pensions and savings at Interactive Investor said that for many pensioners, especially those with no additional income sources, this increase is nothing short of a lifeline.
Women, in particular, stand to benefit significantly, as they often face challenges in building workplace pensions due to career breaks.
“It’s important to remember that, even with the triple lock, the UK state pension is still one of the lowest in Europe,” she said.
Unlocking the state pension
The state pension is a recurring payment issued by the government every four weeks. It is designed for people who have reached the eligibility age and paid regular National Insurance contributions throughout their working lives.
In April 2023, the state pension increased by 10.1%. That's because it matched the level of inflation measured the previous September.
Since then, the state pension has been £203.85 per week for the full, new flat-rate state pension and for people who became eligible after April 2016.
It is £156.20 for the full, old basic state pension which is for those who qualified before April 2016.
If the "starting amount" is more than the full amount of the new state pension, then any amount over that threshold will be protected and paid on top of the full amount when claiming for a new state pension, according to Age UK.
If the starting amount is less than the full amount of the new state pension, it is possible build a higher level of new state pension through contributions made between 6 April 2016 and upon reaching the state pension age.
People born between 6 October 1954 and 5 April 1960 will start receiving their pension at the age of 66.
Currently more than 12 million people receive the state pension.
Those born on or after 5 April 1977 will be the first cohort to work to 68, under current plans.
The state pension cost the UK government £105bn in 2021-22, just under half the total amount spent on benefits.
Watch: What is the pension triple lock?
The triple lock
The surge in wages is poised to play a decisive role in the application of the triple lock mechanism for pension adjustments this year.
It was introduced by the Conservative-Liberal Democrat coalition government in 2010.
In April of this year the Conservative party pledged to keep the triple lock, increasing the state pension for 12.5 million pensioners.
In 2021, the government suspended the triple lock due to unusually high earnings growth which had been skewed by workers going on and coming off furlough support due to the COVID-19 pandemic.
Downing Street said it will ensure the state pension “remains sustainable and fair across generations”, according to PA.
The Prime Minister’s official spokesman said: “We remain committed to the triple lock and we will ensure that the state pension remains sustainable and fair across generations while providing security and dignity in retirement for millions of people across the country.”
📈 Record state pension increase for 12.5 million pensioners.
🔐 We’re protecting the triple lock for pensioners, helping them with the cost of living and ensuring they have the security they deserve. pic.twitter.com/4aA9Uii8Rz
— Conservatives (@Conservatives) April 11, 2023
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: "The prime minister recently refused to be drawn as to whether he would support the triple lock long term though as a general election draws ever closer it would be a difficult pledge to step back from.
"Increasing state pension age is one lever government can pull to manage these costs, but this needs to be balanced with people’s ability to keep on working and people need certainty of when they will receive their state pension to help them plan."
Jonathan Cribb, associate director at the Institute for Fiscal Studies, said that although the triple lock has "increased the generosity of the state pension relative to earnings", it comes with a cost to public finances.
"The triple lock has added £11bn to spending on the state pension in 2023–24 relative to price or earnings indexation. Compared with the Office for Budget Responsibility's (OBR) forecast from just six months ago, today's figures mean spending on the state pension is set to increase by another £2bn in 2024–25."
Labour MP and recently appointed shadow levelling-up secretary Angela Rayner has not confirmed whether her party will commit to the keeping the triple lock after the next general election.
Rayner said: "Labour we will not make unfunded spending commitments, because Liz Truss did that and she crashed the economy."