The government is set to be hit with an “unexpected” £100million increase in next year’s retirement benefit bill, potentially calling into question the future of the state pension in its current iteration.
Sir Steve Webb, a partner at LCP has warned that revised wage growth figures released by the Office for National Statistics (ONS) today could push taxpayer spending up significantly.
The triple lock ensures that pensions rise in line with highest of earnings growth, inflation, or 2.5 per cent; whichever is higher. With inflation falling, wages look set to be the factor determining the pensions increase this year.
Figures released by the ONS today show that for the three months to July 2024 total pay growth figure rose from four percent to 4.1 percent.
According to Webb, the 0.1 percent increase could add £100 million onto the government’s pension bill, at a time when the Chancellor Rachel Reeves is attempting to balance the UK’s books.
The revised wage growth rate could see some pensions rise by around £9 per week.
On how this will impact pensioners, Webb said: “A slightly higher rate of increase is welcome for pensioners, though will be an unwelcome £100million extra cost for the Chancellor as she prepares her Budget.”
Webb warns that the new state pension rate will approach £12,000 annually, close to the £12,570 tax-free threshold, something which may force Reeves to consider changes to tax allowances in the coming years.
The news of increased pension figures will likely come as a small consolation to pensioners preparing for a winter that will not see them receive a £300 winter fuel allowance payment for the first time in over a quarter of a century.
But in spite of this, Webb warns that pensioners might still face financial difficulty over the coming months.
Webb said: “Even a slightly improved pension rise will however leave many pensioners out of pocket in real terms overall next April.”
According to Webb, the increase in money being paid in pensions will merely keep pace with rising inflation, rather than making pensioners better off in real terms.
Combined with the loss of winter fuel allowance and the fact that many pensioners do not receive the full state pension, many of Britain’s elderly could be set to be worse off in the coming years.
