- The full new state pension could rise by more than £500 a year.
- A 4.1 per cent increase would take the annual payment above £13,000.
- The final rise will depend on wage growth and inflation figures still to come.
Could the full state pension cross £13,000 a year next April?
The latest wage figures suggest it could. Average total pay rose by 4.1 per cent in the three months to June, according to the Office for National Statistics (ONS). If the wage figure used for the state pension calculation remains around that level, millions of pensioners could see their payments rise by more than £500 a year.
The full new state pension is currently £241.30 a week, or £12,547.60 a year. A 4.1 per cent increase would take it to around £251.20 a week, or £13,062 a year.
That would be a bigger increase than the 3.7 per cent rise forecast by the Office for Budget Responsibility, although the final amount is still some way from being confirmed.
Why the wage figures matter
The state pension rises every April under the government's triple lock, which means the increase is based on whichever is highest: average earnings growth, inflation or 2.5 per cent.
The earnings figure that matters for the 2027 increase will be published next month and will cover May to July. September's inflation figure will also be used in the calculation.
With inflation currently at 2.6 per cent, average earnings growth is ahead for now. Unless wage growth falls sharply or inflation rises significantly, earnings are therefore likely to determine next April's increase.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, reportedly said the latest figures suggested wages were likely to be the measure used unless there was a sharp rise in inflation or a collapse in wage growth.
So the 4.1 per cent figure is a useful indication, not the final answer.
If the figure remains unchanged, the full new state pension would gain around £514.80 a year, taking the annual payment to approximately £13,062.40.
The tax question hanging over the increase
Crossing £13,000 would also put the full new state pension above the £12,570 personal allowance, the income level at which people normally begin paying income tax.
That does not mean pensioners who rely solely on the state pension will automatically start paying tax on it.
The government has previously said people whose only income is the state pension will not be charged income tax as a result of the increase. However, the precise mechanism for delivering that protection has not yet been fully explained.
Former pensions minister Steve Webb, now a partner at LCP, reportedly said that unless the figures change sharply, people receiving the new state pension could expect an increase of around £500 a year next April.
But he also warned that the rise would push the standard new state pension above the tax threshold, making it important for the government to clarify how its promise to protect pensioners from tax would work.
Older pensioners receiving the basic state pension could also see an increase. The current full rate of £184.90 a week would rise to around £192.50 if the increase were 4.1 per cent, adding just under £400 a year.
For now, the prospect is straightforward: pensioners could be heading for a sizeable increase next April. But the exact amount will depend on the wage and inflation figures still to come, while the tax implications could prove just as important as the increase itself.
