Next April, the state pension is set to see a significant increase.
This is thanks to a robust 8.5% wage rise over the three months leading up to July. Let’s explain how the “triple lock” system operates and whether it’s here to stay.
What is the triple lock?
The triple lock is a mechanism that ensures the full basic state pension rises annually in line with the highest of three factors: earning growth, inflation, or a fixed 2.5%. This year, due to a surge in inflation, the state pension shot up by over 10% in April, costing the Treasury £124 billion. Prime Minister Rishi Sunak has assured pensioners that this commitment will hold despite the impressive 8.5% wage growth in July.
The key figures driving this are the CPI inflation number, released in October, and the wage growth percentage, which came in at 8.5% for September. This means that come April 2024, the state pension will increase by a minimum of 8.5%, resulting in:
Full state pension: £11,501 per year
Basic state pension: £8,812.80
Will this result in pensioners paying tax?
This bump in state pension also means that many more retirees will contribute more to income tax. As a reference, the current personal allowance stands at £12,570 and will remain frozen at that rate until 2027/28. If the state pension increases by 3% on average, it could surpass the personal allowance by April 2027.
How long will the Triple Lock last?
For now, the triple lock is holding steady. Prime Minister Rishi Sunak has confirmed that, despite the surge in wage growth in July, it will remain in effect. It’s worth noting that the triple lock has faced criticism from some economists who argue it may be too costly. Approximately 60% of the UK’s total welfare spending goes towards pensioners. Recent analysis suggests that by 2025, state pension expenses will surpass the combined costs of education, policing, and defence. Furthermore, research from the Institute for Fiscal Studies indicates an additional yearly expenditure of £11 billion on state pensions due to the triple lock.
The current Conservative government has committed to keeping the triple lock in place until at least 2024. Opposition parties, including Labour, also support this policy.