Year-on-year earnings grew by 8.5% from May to July, meaning the UK state pension, relatively low by international standards, is set for another bumper increase. The figures come after Prime Minister Rishi Sunak reportedly failed to commit to the triple lock being in the next Conservative election manifesto. 

 

The state pension increases every April in line with the highest of earnings, inflation or 2.5%, under the ‘triple lock’ introduced under the coalition government in 2010, led by David Cameron. 

 

The Institute for Fiscal Studies calculated that if today’s figure is in fact the highest of the measures in the triple lock, the full basic state pension is set to rise from its current £156.20 per week to £169.50, and a full new state pension – which those who reached state pension age since April 2016 can receive – would rise from £203.85 per week to £221.20, roughly £11,500 a year.   
 
Jonathan Cribb, associate director at the IFS, said together with the introduction of the new state pension, the triple lock has significantly increased the generosity of the state pension relative to earnings. 

 

“But this comes at 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 OBR's 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,” he explained. 

 

“These increasing public finance pressures caused by the triple lock, especially in periods of macroeconomic volatility as we have experienced in recent years, risk the sustainability of the state pension system, meaning heightened uncertainty for individuals planning their retirement finances,” he warned. 

 

The IFS recently published a paper arguing that the triple lock creates uncertainty for current and future generations of pensioners. 

 

The triple lock has developed great significance for political parties. Many voters are pensioners, and so abolishing the triple lock is generally seen as being akin to political suicide. In the recent past, both major political parties have regularly committed to maintaining the triple lock, even as the promise was temporarily downgraded to a double lock when earnings figures artificially increased post-lockdown. 

 

Rishi Sunak’s recent refusal to confirm that the triple lock will be in the next Conservative manifesto has therefore been met with surprise or even outrage. An election is due no later than January 2025. 

But, “while Rishi Sunak fell short of committing to include the triple lock in the Conservative Party manifesto this week, he confirmed it remains government policy and it would be a huge shock if that were to change ahead of April 2024”, observed Dean Butler, managing director for retail direct at provider Standard Life. 

  

Butler said after the price rises of the past two years, the state pension increase “will come as a welcome boost to many”. 

 

However, he noted that there could be tax implications for pensioners, as the annual state pension is now approaching the personal income allowance, frozen at £12,570 until 2028. This leaves pensioners just over £1,000 of headroom before they start paying basic rate income tax, if they do not pay it already. 

  

“An income at or just above the level of the Personal Allowance of £12,570 is below the Pensions and Lifetime Savings Association's estimate for a minimum standard of living in retirement and people in this situation might be struggling financially, even before any tax liability," Butler said. The PLSA estimates that a single pensioner will need at least £12,800 a year for a basic living standard.  

 

After this April’s 10.1% increase, in line with inflation, a rise of 8.5% would mean over two years the state pension will have increased by almost a fifth, while total average earnings for workers have increased by 14.5% over two years, noted Steven Cameron, pensions director at provider Aegon.  

  

“The triple lock has been on a wild ride in recent years due to the high level of volatility in the economy and the unpredictability of both inflation and earnings growth. Looking ahead, all eyes will be on party manifestos to see what commitments are made for the next five years, something Rishi Sunak refused to comment on last weekend,” Cameron said, adding that “all parties  must find a way to balance the books”.  

 

He suggested a fairer and less unpredictable option would be to move away from a year-on-year comparison of earnings, inflation and 2.5%, to one which averages out across three years.