Average earnings figures suggest £500pa state pension rise next April

Today’s figures on average earnings growth from the ONS show that total pay grew by 4.1% between April-June 2025 and April-June 2026.  Unless price inflation rises very sharply in the next three months from its current rate of 2.6%, it is the average earnings growth figure which is likely to be the higher of the two and therefore will determine the increase in the new state pension and old basic state pension next April.

The earnings growth figure for May-July 2026 (one month on from today’s data) is the crucial earnings growth figure used in the state pension ‘triple lock’ formula.  

If earnings growth next month is unchanged on today’s figure, with a new state pension currently at £241.30, an increase of 4.1% would add £9.90 per week to the state pension taking it to £251.20, an increase of a little over £500 per year.  

It would take the state pension from just below the tax-free personal allowance of £12,570, to around £500 above.  
However, the Government has said that a narrowly defined group of pensioners – those wholly dependent on the new state pension (with no private pension) or the old ‘basic’ pension, will not have to pay tax.  The Government has not yet set out how this will work.

For pensioners on the old state pension system, the current basic pension is £184.90 and this could rise to £192.50, an increase of just under £400 per year.  Such pensioners would also receive an inflation-linked increase on any ‘additional’ state pension that they receive (such as SERPS / State Second Pension).  

We will not know the final inflation figure to be used until we have the September CPI, published in October.   However, the latest rate of CPI was just 2.6% in the year to June.  

In March, alongside the Spring Statement, the OBR published its latest Economic and Fiscal Outlook which assumed a ‘triple lock’ increase on the state pension of 3.7% next year. An increase of 4.1% would therefore be slightly higher than expected.

Commenting, Steve Webb, partner at pension consultants LCP said: “Under the triple lock formula, the new state pension will rise next April by the highest of the growth in wages, prices or 2.5%.  Based on today’s figures, it is highly likely that it will be average earnings growth which comes out on top.  Unless things change sharply in the next month, those on the new state pension can expect to see an increase of around £500 per year next April.  But the sting in the tail is that this will take the standard rate of the new state pension above the tax threshold.  We therefore urgently need to know how the government plans to fulfil its pledge to make sure that those wholly dependent on the new state pension will not be charged income tax next year.”