Pensioners are on course for 3.9% state pension boost next year after the final piece of the triple lock puzzle was revealed on Wednesday.
Under the triple lock mechanism, the state pension sees an annual rise in April in line with inflation, wages, or 2.5% – whichever is higher.
The Office for National Statistics (ONS) said on Wednesday that the rate of Consumer Prices Index (CPI) inflation was 3.5% in September, accelerating from 3.1% in August.
But this does not beat the 3.9% wage growth figure that had already been published.
This would put someone on the full new state pension on course to receive £250.70 per week from next April – up from £241.30 per week currently.
Someone on a full basic state pension would receive £192.10 per week, increasing from £184.90, reaching around £9,989 per year.
Many people do not receive the full state pension.
With the personal tax allowance frozen at £12,570, some pensioners are heading towards being caught within the tax net – with the annual new state pension poised to be pushed up to around £13,036 next year.
The Government has said pensioners who are wholly dependent on the new state pension – with no private pension – or the old “basic” pension, “with no increments” will not have to pay tax.
Further details are anticipated in the Budget.
Rachel Vahey, head of public policy at AJ Bell, said: “Pensioners are set to receive just shy of £500 extra in their state pension next year.
“The full new state pension is set to surge past £13,000 for the first time, leaving the frozen £12,570 personal allowance trailing in its wake.
“The Government has promised that those living solely on a state pension above the allowance will not pay income tax on it – but the crucial detail on how that will work is still missing.
“Pensioners are now looking to next week’s Budget to fill in the blanks.”
Claire Trott, head of advice at St James’s Place, said: “While the uplift in income will be welcomed by many, it also marks a significant milestone, with the full new state pension exceeding the £12,570 personal allowance for the first time.
“Although those receiving only the state pension are not expected to face a tax bill, pensioners who draw on other sources of income, such as workplace or private pensions, savings or earnings from work may find themselves with a higher tax liability as a result.
“It’s therefore worth taking a closer look at your retirement income ahead of April to make sure you understand what the changes could mean for you and plan accordingly.”
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “The state pension is, and will remain, a firm foundation on which to build your retirement income.
“However, the reality is it is only going to cover the basics no matter how it is increased. If you want to maintain the lifestyle you enjoyed while working, it’s important to make the most of your pension.
“Taking small steps, such as boosting contributions whenever you get a pay rise or promotion, can be really useful. If your employer will increase their contribution if you increase yours, then that can also really pay off long-term.”
Prime Minister Andy Burnham has previously said that from April 2030, Labour plans to adjust the triple lock, which is used to increase state pensions each April.
The state pension overhaul would help to fund a new National Care Service in England.
Under the plans, the state pension would continue to rise every year at least by CPI (Consumer Prices Index) inflation or 2.5%.
The door would still be left open to it rising by more than this if needed in some years, so that the state pension holds its value relative to average worker earnings.
State pensions are already expected to equate to around 30% of average earnings by the end of the decade.
Andrew King, a pensions specialist at wealth management firm Evelyn Partners, said: “The ongoing crunch in the public finances is likely to leave future governments grappling with a soaring state pension bill unless other steps are taken to restrict it.”
Catherine Foot, director of the Standard Life Centre for the Future of Retirement, said: “Whatever mechanism is used to increase it in future, maintaining confidence in the state pension as the foundation of most people’s retirement income will be essential.
“This is a particularly important moment for Generation X.
“Many are approaching retirement with undersaving challenges and less access to defined benefit pensions than earlier generations.
“Working longer can improve retirement outcomes and will be part of the answer, but it may not be realistic for everyone, particularly those affected by ill health, caring responsibilities or limited opportunities in the labour market.
“The change to the triple lock therefore needs to be considered alongside broader decisions on the future state pension age and the Pensions Commission’s work on retirement adequacy, including wider action to increase automatic enrolment contributions.
“The goal must be a system that remains sustainable and affordable while giving people clarity and a firm foundation on which to plan.”