State pension set to rise by £460 next year

The new full state pension is expected to rise by £460 a year from April, latest wages data suggests.

Under the arrangement called the "triple lock", the state pension goes up each year by either 2.5%, inflation, or average earnings growth - whichever is the highest figure.

Earnings figures for the three months to July are used for the yearly increase, and these showed total pay rose at an annual rate of 4%, much higher than inflation.

The news comes as the government faces a backlash over its decision to cut the winter fuel payment for most pensioners.

More than nine million pensioners will no longer be eligible for up to £300 this winter after the Chancellor, Rachel Reeves, announced the introduction of means-testing for the payments.

How much is the state pension?

More than 12 million people currently receive the state pension.

The latest ONS figures imply

• the full, new flat-rate state pension (for those who reached state pension age after April 2016) is expected to increase to £230.05 a week. That will take it to £11,962.60 a year, a rise of £460 compared with now.

• the full, old basic state pension (for those who reached state pension age before April 2016) is expected to go up to £176.30 a week. That will take it to £9,167.60 a year, a rise of £353.60 compared with now.

Last year, the new full state pension increased by £900. However, not all pensioners get the full amount.

Some retired people will also receive additional income from workplace or private pensions.

The final state pension figure for next year will be decided by the Work and Pensions Secretary, Liz Kendall, around the time of the Budget and may be different if official earnings figures are revised in a month.

Steve Webb, a former pensions minister and partner at pension consultants LCP, said the new state pension would need to rise by just over £250 just to keep up with inflation.

As a result, only about £210 represents a real increase, "and this is before allowing for the income tax which most pensioners will pay on their state pension rise".

"Those who lose £200 or £300 in Winter Fuel Payments will therefore still be worse off in real terms next April”.

For those pensioners on low incomes with no huge savings tucked away, there may be the opportunity to claim a top-up called pension credit.

This can be worth thousands of pounds a year and is a gateway to other financial support such as lower council tax or help with NHS costs, but more than 800,000 eligible pensioners fail to claim it.

The increase in total pay - which includes bonuses - measured by the ONS showed a marked slowdown from the previous month.

The ONS said this was due to one-off bonuses paid to NHS and civil service workers in June and July 2023 not being replicated this year.

Growth in regular pay, excluding bonuses, also slowed to 5.1%, although it is still rising faster than inflation.

Analysts said the continued slowdown in earnings should encourage the Bank of England to cut interest rates again later this year.

Last month, the Bank cut rates to 5% from 5.25%, marking the first cut since the start of the pandemic in March 2020.

It meets again to discuss interest rates next week, although analysts are not expecting further rate cuts until later in the year.

"With wage growth easing off again, it’ll cement expectations that the Bank of England will deliver two interest rate cuts by the end of the year," said Susannah Streeter, head of money and markets at Hargreaves Lansdown.

The unemployment rate in the May to July period slipped to 4.1%, the lowest since the three months to January 2024.

The number of job vacancies between June and August fell to the lowest figure for more than three years, although the total is still above pre-pandemic levels.