A 4.7% increase in the state pension is on its way soon because of a rise in wages, according to financial experts. A hike of this size would lead to an increase of £561.60 a year
Money boffins reckon a 4.7% increase in the state pension is coming soon. An increase of this size would see the state pension, for those who reached the state pension age after April 2016, go from £230.25 per week to £241.05 per week from April. That is an increase of £561.60 a year.
The basic state pension, for those who reached the state pension age before April 2016, would go from £176.45 per week to £184.75, a rise of £431.60 per year. The prediction by fiscal eggheads is based on UK labour market data published by the Office for National Statistics (ONS). The data says the average wave growth including bonuses shot up by 4.7% in the period between May to July.
Under the triple lock guarantee, the state pension increases every April in line with whichever is the highest of total earnings growth in the year from May to July of the previous year, CPI (Consumer Prices Index) inflation in September of the previous year, or 2.5%.
While the final piece of the puzzle will not come until inflation figures for September are published in October, it is thought unlikely that the rate of Consumer Prices Index will be higher than 4.7%. Inflation currently stands at 3.8%, with the latest data for August due out on Wednesday.
Experts said this means the wage rise will be used to calculate the figure for the annual increase, putting pensioners on track for a 4.7% uplift in the state pension next year. However, the wage growth figures are subject to revision when next month’s jobs market data are released.
Pat McFadden, the Work and Pensions Secretary, confirmed the Government’s election manifesto promise on the pensions triple lock would be honoured.
He said: “This Labour government is committed to maintaining the triple Lock for the course of this Parliament.
“It is estimated that will mean a rise in the state pension of around £1,900 a year by the end of the Parliament.
“That’s a commitment from the Labour government to the UK’s pensioners.”
Hargreaves Lansdown said that based on a rise of 4.7%, this would see a full new state pension increase from its current level of £230.25 per week to £241.05 per week from April.
Those retiring on the basic state pension would see their weekly income increase from £176.45 per week to £184.75.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, warned the increase in the state pension would put many pensioners close to the threshold for paying income tax.
She said: “If they receive the 4.7% uplift it takes their annual state pension to around £12,535 per year which leaves them just a whisker under the threshold of paying basic rate tax.
Ms Morrissey cautioned that next April’s pension increase would “add further pressure on the Government who are battling an already burgeoning state pension bill”.
She said: “The Government has committed to keeping the triple lock in place for the rest of this Parliament but longer term its future could be uncertain.
“With a review into state pension age also ongoing, other options could include an extension of the current timetable with dates for state pension age running into the late 60s and beyond.”
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