Pensioners could see a boost of more than £550 to their state pension payments next April, fresh analysis reveals.
The full, new state pension could climb to £12,524 in April – up from its current £11,973 – due to strong wage growth figures, forecasts from consultancy Broadstone show.
The potential surge in payments would be a welcome relief to vulnerable pensioners struggling on low incomes, but another potential headache for the Government.
The new annual figure would also fall short of the £12,570 personal allowance threshold at which tax starts to be due – but only by £46.
Rising? The state pension could climb to £12,524 next year thanks to inflation
Every year, the state pension rises by the highest of inflation, earnings growth or 2.5 per cent under a mechanism known as the triple lock.
The hike in April, 2026, will be based on either September’s annual inflation figure or annual earnings growth from May to July.
Neither figure has been released but average earnings growth including bonuses is currently 4.6 per cent (April to June) outpacing inflation which creeped up to 3.8 per cent, latest data on Wednesday showed.
There’s still one month of data still to be released for wage growth and it is expected to outpace inflation, Broadstone says.
Its calculations show if this rate of wage growth was maintained, pensioners could see a boost of as much as £551 to their annual payments.
Weekly payments could climb from £230.25 to £240.84. That’s if payments soar by 4.6 per cent – this month’s average earnings growth.
However, if earnings growth plunges dramatically in the next month, September’s inflation figure will likely determine next year’s rise in payments.
The Bank of England predicts September’s inflation figure will be 4 per cent, which means the annual state pension would climb by almost £480 to £12,452.
The official wage growth figures for May to July will not be released until mid-September while September’s inflation figure is revealed in October.
The personal allowance threshold has been frozen since April 2021, in a stealth tax grab and will remain so until at least April, 2028, when it is set to rise in line with inflation.
But due to double digit inflation figures, the state pension has soared in the last few years and it is now at risk of breaching the tax threshold in a process known as fiscal drag.
Forecasts from Deutsche Bank released earlier this year showed the state pension rising by 5.5 per cent to £12,631 in April 2026, breaching the personal allowance threshold.
But this fresh analysis from Broadstone is more conservative in its calculations and it expects that retirees living on the state pension alone won’t be pulled into the tax system next year.
However, swathes of pensioners who have even just an income as small as £50 a year from a personal or private pension could soon breach the personal allowance limit and will technically be liable to pay tax on any income over this amount.
Some 8.7 million people of at least state pension age or older are projected to pay income tax on retirement income in 2025-26, a rise of around 420,000 compared to last year.
It’s a hike of 1.85 million from ten years ago in 2015-16, the latest HM Revenue and Customs data shows.
David Brooks, head of policy at Broadstone, said: ‘Another significant increase to the state pension now looks inevitable given the strong growth in average earnings and rising inflation.’
‘The good news is this will provide further financial assistance to pensioners in light of ongoing cost-of-living pressures and the reliance of many retirees on the state pension as their main source of income.
‘The bad news is that the rising costs of the benefit risks creating growing tension between today’s taxpayers who fund the system and current pensioners who rely on it.
‘The Government and Pensions Commission will be under pressure to confront this challenge as part of the independent state pension age review.’
‘It seems inevitable that, while the state pension will and should remain a bedrock of retirement provision, calls to introduce means-testing will grow louder.
‘These should be resisted, but what remains on the table is the possibility of the cost being met by wealthier pensioners via the introduction of a national insurance contribution of some kind or a winding down of the triple lock.’