The state pension is set to rise by £490 next year as a result of the triple lock, adding to “pressures” facing Chancellor John Healey as he draws up his first budget.
New earnings growth data released on Tuesday has indicated that the triple lock pension will rise by 3.9 per cent.
The triple lock state pension rises each year by whichever is highest out of wage growth, inflation or 2.5 per cent, according to economic data released every September.
New figures on earnings showing that wage growth including bonuses was 3.9 per cent suggests that the triple lock pension will increase in line with people’s earnings.
Inflation figures on Wednesday are expected to come to 3.1 per cent, as per a poll of economists by Bloomberg.
The rise in the state pension pot will mean that pensioners get handed a £490 boost next year, according to calculations made by Hargreaves Lansdown.
The full new state pension could amount to about £13,036, which is above the tax-free personal allowance of £12,570.
Triple lock pension to add to £190bn bill
The Labour government has promised that those relying solely on the state pension will not be expected to pay income tax. However, those receiving cash from other sources could see more of their income taxed.
Liam McLaughlin, associate economist at the National Institute of Economic and Social Research, said the rise would be “adding fiscal pressure at a time when the triple lock is already under scrutiny”.
Economists have widely criticised the mechanism behind the triple lock pension as “unsustainable” for the public finances.
The Institute for Fiscal Studies warned that keeping the triple lock could cost the government up to £40bn more a year in today’s terms than if it rises were linked to solely wage growth.
Jonathan Cribb, deputy director of IFS, warned that the more “volatile” inflation and average earnings growth were, the “higher the cost” to the taxpayer.
“Each increase in spending builds upon the last, and so the long-run cost is substantial but very uncertain,” Cribb said.
The state pension is the largest benefit handed out by the government. Spending on pensioners will amount to about £196bn by 2031, according to forecasts published in March.
The Office for Budget Responsibility said the state pension triple lock would cost nearly £16bn more per year by 2030 than if a standard earnings-linked rise was maintained. This is nearly three times an initial forecast the independent forecaster predicted when the uprating mechanism was introduced.
Several economists across the political spectrum have called for the triple lock pension to be replaced in order to make it more sustainable.
The Resolution Foundation, a left-leaning economics think tank, said it should be replaced with a “smoothed” earnings link. In years where inflation beats wage growth, the state pension would rise temporarily with price rises to protect the real value. Under the plan, wen earnings growth rises back above inflation, the state pension would not immediately follow a rise in wage growth in order to keep the state pension at a stable level.