Pensioners could get an extra £900 a year from April 2024 as the Government reportedly does not plan to adjust the triple lock mechanism.
The state pension is set to increase by a bumper 8.5 per cent, in line with the earnings figure used in the triple lock, sources have suggested to ITV News.
It would mean the full new state pension would increase to £203.85 per week to £221.20, or £11,502.40 per year.
The full basic state pension would rise from £156.20 per week to £169.50 per week – equating to a total of £8,814 per year.
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Benefits are also set to increase by 6.7 per cent, in line with September’s inflation figure, ITV News reports.
Chancellor Jeremy Hunt is expected to confirm the increases in his Autumn Statement tomorrow.
There had been speculation the Chancellor could adjust the triple lock mechanism, using a different statistic than they typically use, due to concerns the 8.5 per cent earnings figure was artificially inflated due to one-off cost of living payments to health workers.
Speaking ahead of the Autumn Statement, Evelyn Partners’ Head of Tax Sian Steele said: “Since average earnings growth for the May to July quarter came in so high, at 8.5 per cent including bonuses, there has been speculation that the Government would adjust down the prescribed rise for April to the excluding-bonuses rate of 7.8 per cent, to save some money for the Treasury.“
While this would inevitably lead to accusations of ‘watering down’ the triple lock, it is arguably quite a sensible alteration.
“The surprise is more that successive governments have allowed bonuses to be included in the calculation, as they are volatile and something that only a small proportion of the working population benefit from – and this year’s figure was particularly distorted by a one-off NHS deal.”
The triple lock is a commitment which guarantees the state pension increases by whichever is the highest out of 2.5 per cent, average earnings growth or consumer prices inflation.
The state pension increased by 10.1 per cent in April 2023.
It added £11billion to the spending on the state pension this financial year, according to the IFS.
An 8.5 per cent hike pencilled in for April 2024 would cost the Treasury £2billion more in 2024/25 than the OBR forecast at the Spring Budget, the IFS said.
Ms Steele said removing bonuses from the earnings figure used in the triple lock would have been an “obvious and relatively uncontroversial reform” to the triple lock – even if it had been implemented earlier this year “when it was already clear that costs to the Treasury from state pension increases were escalating rapidly”.
Rishi Sunak will reportedly ensure the 8.5 per cent figure will be used for the state pension triple lock
She added: “But now the dialogue over the triple lock has become charged by election politics, any reduction in the current slated increase will doubtless be a matter of controversy.”
While another substantial state pension increase would be welcome news for pensioners struggling to get by, many pensioners are facing being dragged into the tax net via fiscal drag.
A six-year freeze to the personal allowance – which will remain at £12,570 until 2028 – means as taxable incomes rise, those on a lower income could tip into the 20 per cent basic tax rate band, and have to pay income tax on anything above the personal allowance threshold.
An HM Treasury spokesperson said: “Our tax burden remains lower than any major European economy, despite the difficult decisions we’ve had to make to restore public finances after the dual shocks of the pandemic and Putin’s illegal invasion of Ukraine.
“But the best tax cut we can provide is lower inflation, and we have now achieved our priority of halving it this year, and will continue to build on our work to get it all the way back down to two per cent.
“We have also taken three million people out of paying tax altogether since 2010 through raising personal thresholds, and the Chancellor has said he wants to lower the tax burden further – but has been clear that sound money must come first.”