State pension forecast to rise by 8% next year with cost to government set to soar

The Treasury is set to increase the state pension by more than 8% from next April as record earnings growth looks to exceed inflation, according to the Financial Times.

The value of the state pension is determined by the pension triple lock, which sees it rise annually in line with the highest of inflation, average earnings growth or 2.5%.

Wage growth rose by 8.2% in April to June, and economists expect a similar figure to be reported for May to July, the FT said.

With the figures higher than the current rate of inflation, at 6.8%, the next state pension increase will most likely be determined by wage growth.

The expected 8% increase for the 2024-25 financial year follows the 10.1% increase to the state pension this year. Labour and the Conservatives have pledged to keep the triple lock.

The policy has ensured the full new state pension is worth 11% more than it would have been had it risen only in line with inflation since 2011, according to the Institute for Fiscal Studies (IFS).

There has been uncertainty about the future value of the state pension in recent months and criticism over the amount of government spending needed to fund its increase.

The Department for Work and Pensions forecasts state pension costs will rise from £124bn this year to £134bn in 2024/25, with the link to earnings growth adding £3bn to this sum, according to the FT.

Heidi Karjalainen, a research economist at the IFS, said the triple lock makes it hard to know how much you will receive from the state pension in the future.

‘An additional real risk is that retaining the triple lock for too long increases state pension spending so significantly that it leads to insurmountable pressure for a much higher state pension age,’ she said.

The IFS found that in the 13 years since the triple lock was introduced, state pension spending has increased by £11bn per year relative to either price or earnings indexation.

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