Today’s figures on average earnings growth from the ONS show that total pay grew by 3.9% between May-July 2025 and May-July 2026. Unless price inflation rises very sharply in the next two months from its July rate of 2.9%, it is the average earnings growth figure which will be the higher of the two and therefore will determine the increase in the new state pension and old basic state pension next April.
A 3.9% rise would take the full new state pension to around £13,036 a year, approximately £466 above the £12,570 personal allowance, while another above-inflation increase could add to the wider debate around the affordability of the triple lock.
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, however, based on the policy as described to date, analysis from pension consultants LCP suggests that just 1 in 16 pensioners may benefit from this concession.
Steve Webb, former pensions minister and partner at 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. Those on the new state pension can expect to see an increase of nearly £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. The government’s plans to address this point are a mess, and likely to benefit only a small fraction of pensioners. They will also create unfairness between different groups of pensioners and between pensioners and low-paid workers, who do not qualify for any exemption.”
Claire Trott, head of advice at St. James’s Place, commented: “Today’s wage growth figure of 3.9% for the three months to July puts pensioners on course for another significant increase to the new state pension next April. If earnings determine the triple lock, which looks increasingly likely with inflation currently at 2.9%, the full new state pension will rise by around £490 a year to approximately £13,036.
“While many pensioners will welcome the boost, this will take the full new state pension above the £12,570 personal allowance for the first time, by around £466. While those relying solely on the state pension are not expected to pay income tax, those with other sources of income, such as private pensions, savings or employment, could find more of that income subject to tax."
Jenny Holt, customer savings and investment director at Standard Life, said: “Today’s May to July wage growth figure of 3.9% is significant as it is likely to set the level of next year’s state pension increase under the triple lock. If September inflation comes in below today’s earnings figure, as currently looks likely, a 3.9% increase would take the full new state pension above the £12,570 personal allowance for the first time from April 2027.
“Crossing the personal allowance would be an important milestone, but it does not mean everyone receiving the state pension will suddenly face a tax bill. The amount of tax someone pays depends on their individual circumstances and any other income they receive. The government has said it intends to ensure that people whose sole income is the basic or new state pension do not have to pay small amounts of tax as a result, with a new approach due from 2027/28.
“However, the plans as currently set out are focused specifically on those with no other income, meaning people with even a relatively small amount of additional taxable income - for example from a workplace or private pension - could still find themselves with a tax liability. With the personal allowance remaining frozen at £12,570, that brings the interaction between a rising state pension, private retirement income and tax thresholds into even sharper focus."
David Brooks, head of policy at Broadstone, added: “The earnings growth data looks set to provide another big boost to the state pension from next year, delivering a welcome financial uplift to retirees as we head towards a challenging winter.
“The full new state pension now exceeds the personal allowance, a landmark that will inevitably draw further attention to the impact of frozen tax thresholds and the substantial increases we have seen in the state pension over recent years.
“The increase will sharpen the question of whether the triple lock remains affordable over the long term given the UK’s precarious public finances. It is important not to throw the baby out with the bathwater as protecting pensioner living standards remains vital, but the system also has to be fair and financially sustainable across generations.
“Transitioning to a double lock that protects increases in line with working-age benefits would seem the most likely compromise given it is today’s workers who ultimately fund the state pension.”
