State pension tipped to increase by nearly £500 as inflation rises

September CPI figures, released today (October 21) have inflation at 3.5%.

This is lower than the ONS average earnings growth, so will not impact the Triple Lock. Prime Minister Andy Burnham previously said the Labour government would keep the triple lock until the end of the current Parliament.

This means the last piece of the triple lock fell into place, and pensioners should see a rise of 3.9%.

 That 3.9% increase for the 2027/28 state pension will take the weekly payout from £241.30 to about £250.70, and bring the annual full flat-rate state pension, for those who reached SP age after April 2016, to £13,036.40.

The old basic state pension, for those who reached state pension age before April 2016, will be about £192.10 a week, or £9,989.20 a year.

What is the Triple Lock?

Under the triple lock system, the state pension increases each April in line with whichever of three measures is the highest:

• inflation in the September of the previous year, using a measure called the Consumer Prices Index (CPI) - this year that is 3.5%
• the average increase in total wages across the UK for May to July of the previous year - this year that is 3.9%
• or 2.5%

Andrew King, pensions specialist at wealth management firm Evelyn Partners, says: "Since last month’s earnings data, the state pension has stormed to the forefront of political debate after the Prime Minister broke ranks among the major parties by announcing that Labour policy will be to reform the triple lock to a double lock at the next election.

"If a double lock of the higher of CPI inflation or 2.5% was in place now, it would result in a lower SP increase for 2027/28 of 3.5%, in line with this CPI reading. While pensioners and those nearing state pension age will largely welcome another significant increase to the payout, the debate as to whether a double-lock would materially reduce costs to the Treasury in the medium term will continue – especially as Mr Burnham hinted that some sort of earnings link might still be retained."

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What does that mean for pensioners and their personal allowance?

Mr King says: "The April 2027 boost to the SP means that some retirees on the full flat rate could incur an income tax liability in 2027/28 even if they have no other income.

"The new £13,036.40 annual payout would exceed the personal income tax allowance by just under £467, and at the basic rate of income tax that could mean just over £93 is owed to HMRC.

"That is slightly up in the air because the Government has hinted that those who receive the SP alone will not be charged income tax on it. We hope the Budget will deliver some confirmation or details of this policy. If it is confirmed, that could be viewed as unfair by those who do have a smaller state pension but additional private income and so have to pay the tax."

Why petrol and diesel prices pushed inflation higher

Transport costs made the biggest contribution to September's rise, with average petrol and diesel prices reaching their highest levels in four years.

ONS chief economist Grant Fitzner said: “Inflation climbed notably in September to its highest annual rate in almost a year.

“Increased fuel prices were again the main driver, with the cost of diesel the highest since July 2022.”

Airfares, computer games and live events also contributed to the increase, while hotel prices rose by less than they had a year earlier.