State pension payouts are set to increase by 3.9% next year under the triple lock policy, according to the latest data from the Office for National Statistics (ONS).
The state pension increase is linked to the increase in average earnings in the three months to July this year.
Under the state pension triple lock, annual payments increase by the highest of average earnings in July, Consumer Prices Index inflation in September or 2.5%.
As a result, the basic ‘old’ state pension will rise by £5.05 a week to £134.25, while the ‘new’ state pension will increase by £6.60 a week to £175.20.
AJ Bell senior analyst Tom Selby said retirees will enjoy a near 4% increase in their state pension payouts next year, which is more than double the rise in average prices during September.
“On the one hand the triple-lock is quite an odd policy, increasing the real value of the state pension arbitrarily when earnings and inflation are low,” Selby said.
“It could be argued a more rational policy would establish what levels a ‘fair’ state pension should be, raise the benefit to that amount and then remove the 2.5% element.”
However, he added it was unlikely the popular policy would be changed ahead of a likely general election.
“Given older people usually head to the ballot box in the greatest numbers, it is extremely unlikely any party will propose significant changes to this popular policy in their respective manifestoes.”
The bumper increase has come after September’s inflation figure was confirmed at 1.7%.
‘Sting in the tail’
Royal London pointed out from next year those not on pension credit will be required to pay for a TV licence rather than receiving it for free, meaning their state pension increase will be less in real terms.
The current annual cost of a TV licence is £154.50 and is set to rise again next year. The life insurance and investment giant calculated that those who will have to pay for a licence will see just a 1.6% increase in their state pension.
It found some 1.7 million single pensions over age 75 will, therefore, face a cut in their real living standards next year.
Royal London director of policy Steve Webb said: “The pension rise will be great news for those not affected by the TV licence changes. But there is a sting in the tail for around 1.7 million single people over 75 who will experience a squeeze in their standard of living once they have paid over £150 for a TV licence next year.
“This makes it all the more important that older pensioners check if they might be entitled to claim pension credit so that the poorest pensions do not face this squeeze.”