The triple lock pension cost is on course to reach nearly three times its original forecast, new figures show, as the full flat-rate state pension edges above £13,000 a year for the first time following the latest official wage growth data.
Average earnings, including bonuses, grew by 3.9% between May and July, according to the Office for National Statistics. That figure, down from 4.2% in the previous three months, is the one the government uses to calculate next April’s state pension increase. Because it outpaces both inflation and the policy’s 2.5% floor, it is wage growth that will drive the rise.
The triple lock guarantees the state pension rises each year by whichever is highest: average wage growth, inflation, or 2.5%. Labour pledged in its manifesto to keep the policy until 2029.
What pensioners can expect to receive
Based on the 3.9% figure, the flat-rate state pension, which applies to those who reached state pension age after April 2016, will likely rise to £250.70 a week, or £13,036.40 a year, an increase of £488. The older basic state pension, for those who reached pension age before April 2016, will likely rise to £192.10 a week, or £9,989.20 a year, an increase of £374.40.
Pensioner groups say older people face real cost of living pressures, including high energy bills, and point out that the state pension remains small compared with provision elsewhere in Europe.
The growing triple lock pension cost
The long-run bill is the central concern for many economists. Forecasts cited in the story put current state pension spending at £154 billion this year, with the triple lock set to add a further £600 million a year by 2029-30.
The full scale of the cumulative effect emerges from the Office for Budget Responsibility, which has calculated that the triple lock will have added £22.9 billion to annual state pension spending by 2029-30. The Intergenerational Foundation, drawing on OBR data, puts the policy’s annual cost at £15.5 billion by 2029-30, or almost three times the £5.2 billion originally forecast when the triple lock was introduced.
Looking further ahead, the OBR’s central projection is that state pension spending will rise from around 5% of GDP now to 7.7% of GDP by the early 2070s, according to the Intergenerational Foundation’s analysis of OBR figures. The state pension age is scheduled to rise from 66 to 67 between 2026 and 2028, according to the OBR, though that change has not prevented the overall cost from climbing steeply.
Ruth Curtice, chief executive of the Resolution Foundation think tank, told the BBC the policy was ‘crazy,’ warning that the triple lock creates a ‘ratchet effect’ where ‘pensioners’ living standards grow even faster than just a typical worker.’ She added that pensioners have seen living standards grow three times more than typical workers over the last 20 years.
Jonathan Cribb, deputy director of the Institute for Fiscal Studies, said: ‘Each increase in spending builds upon the last and so the long-run cost is substantial but very uncertain.’
The tax question
A £13,036.40 flat-rate pension would take recipients above the personal allowance of £12,570, raising the prospect of an income tax liability for some pensioners for the first time. Almost 13 million people receive the state pension in the UK.
The government said it has recommitted to exempting those whose only income is the state pension from tax. Pensions minister Torsten Bell said: ‘In line with the commitment made at Budget 2025, pensioners who only just exceed the personal allowance will not pay small amounts of tax in this parliament which we know is an administrative burden. The chancellor will set out further details on how that commitment will be delivered at the Budget.’
Analysis by consultants LCP suggested that only one in 16 pensioners would benefit from the government’s pledge, saving about £91 each a year. The majority of pensioners have additional pension income and already pay income tax. Sir Steve Webb, a partner at LCP and a former Liberal Democrat pensions minister, said: ‘The government’s plans to address this point are a mess.’
Shadow chancellor Andrew Griffith was sharper still, saying: ‘People living on nothing but their state pension are now facing a tax bill for the first time ever. Many will spend the last years of their lives filing tax returns or hanging on HMRC telephone helplines.’
The chancellor is expected to set out how the tax exemption will work in practice at the upcoming Budget, giving pensioners and campaign groups a firm date to watch.
