Pensioners are in line for a £460 a year boost to their State Pension.
This comes after UK labour market data showed average wages, including bonuses, rose by 4% between May-July this year.
It means someone on the full new State Pension will see their income rise from £11,502 to £11,962 per year from next April.
And those on the basic State Pension will also receive the 4% uplift, taking the full amount from £8,814 to £9,167 per year.
Why is the State Pension rising?
The State Pension is uprated every year by whichever is highest of 2.5%, average earnings growth and inflation – this is known as the triple lock.
The most recent figures, covering the May-July period, have been hotly anticipated. That’s because with inflation on a steep downward trajectory in recent months, it’s looked increasingly likely that wage data will be the figure used.
Of course, this is yet to be confirmed for certain. But with inflation currently sitting at 2.2%, it’s highly unlikely to overshoot average wages in the coming months.
Is the State Pension boost enough for pensioners?
The 4% increase is much lower than some of the blockbusting increases we’ve seen in recent years – the most recent increase was a whopping 8.5%.
However, it remains comfortably above inflation and so should, in theory, offer some extra flexibility in stretched pensioner budgets.
There are challenges still facing retirees though.
This likely increase won’t be paid until April and in the meantime lots of pensioners face rising winter fuel bills with the energy price cap rising 10% to £1,717 from October.
Added to this the government has recently announced that winter fuel payments, once given to all pensioners, will now only be given to those on Pension Credit.
This leaves a gap of anywhere between £100 and £300 in pensioner incomes.
Some will manage well without it, while others will undoubtedly struggle unless they can make a successful claim for Pension Credit in the coming months.
Could the State Pension become means tested?
The move has also opened the door to speculation that the State Pension could become means tested in a bid to manage costs.
People need certainty of what they’ll receive from the state, and when, in order to make sensible plans for their retirement. Speculation like this risks undermining confidence in the system.
It’s one reason why we need to see the State Pension and the triple lock’s role form part of the government’s pension review. That way pension provision can be assessed in a holistic manner that puts the State Pension on a sustainable footing long term.
This article isn’t personal advice. If you’re not sure what’s right for you, ask for financial advice. Remember, pension and tax rules can change, and any benefits depend on individual circumstances. You also can’t access money in a pension until age 55 (rising to 57 in 2028).
Will you need more than the State Pension?
The State Pension is the backbone of people’s retirement income. But for a decent retirement income, it’s important you supplement it with your own retirement savings, whether that’s through a workplace pension or a private pension like a Self-Invested Personal Pension (SIPP).
The latest data from HL’s Savings and Resilience Barometer shows only 38% of households are on track for a moderate retirement income. So, clearly there’s still more to do.
Small actions like upping your pension contributions when you get a pay rise or new job is one way to boost your contributions.
You should also make sure you’re making the most of any contributions your employer is making.