State Pension Set to Top £13,000 as Wage Growth Slows to 3.9%

The state pension is expected to exceed £13,000 a year after the latest official earnings figures, reopening the argument over the policy's long-term affordability and fairness between generations. Under the triple lock, the state pension rises by whichever is highest of average wage growth, inflation or 2.5 per cent. Tuesday's data from the Office for National Statistics showed average wage growth, including bonuses, at 3.9 per cent between May and July, down from 4.2 per cent in the previous quarter but still above the 3.5 per cent recorded when bonuses are excluded. Because wages outstripped inflation, the full flat-rate pension is set to increase by £488 a year in April.

That would take the payment for those who reached state pension age after April 2016 to £250.70 a week, or £13,036.40 a year. The older basic state pension, for those who reached pension age before April 2016, is expected to rise by £374.40 to £192.10 a week, or £9,989.20 a year. Labour pledged in its manifesto to retain the triple lock until 2029. Economists have nonetheless warned about the cost ahead of the Budget, while pensioner groups insist many older people still face poverty.

The policy was designed to prevent the value of the state pension being overtaken by the cost of living or the earnings of working people. Yet the cost to the government has climbed sharply. Spending on pensions already stands at £154bn this year, and forecasts suggest it could rise by a further £600m a year by 2029-30. Ruth Curtice, chief executive of the Resolution Foundation, called the policy crazy. She said the triple lock was creating a ratchet effect in which pensioners' living standards grow faster than those of a typical worker, noting they had risen three times more over the past two decades. Jonathan Cribb, deputy director of the Institute for Fiscal Studies, said each increase builds on the last, so the long-run cost is substantial but very uncertain.

Almost 13 million people in the UK receive the state pension. A rise of 3.9 per cent would lift the flat-rate pension above the personal allowance of £12,570, making it liable for income tax. The government says it has recommitted to exempting those whose only income is the state pension. Labour, when Rachel Reeves was chancellor, promised that pensioners relying solely on the state pension would not have to complete a tax return or be pursued for payment. Asked on Tuesday, Business Secretary Jonathan Reynolds declined to confirm the exemption. Pensions minister Torsten Bell later said that, in line with the commitment made at the 2025 Budget, pensioners who only just exceed the personal allowance will not pay small amounts of tax in this parliament, adding that the chancellor would set out further details at the Budget.

Analysis by the consultants LCP suggested only one in 16 pensioners would benefit from the pledge, saving about £91 each a year. Most pensioners have additional income and already pay tax. Sir Steve Webb, a partner at LCP and a former Liberal Democrat pensions minister, described the government's plans as a mess. Before ministers restated their commitment, shadow chancellor Andrew Griffith said people living on nothing but their state pension now faced a tax bill for the first time, and that many would spend their final years filing returns or waiting on HMRC helplines.

The ONS also published labour force figures. Unemployment was unchanged at 4.9 per cent, but vacancies and the number of employees on payrolls fell in recent months.