The state pension is poised to increase by over £560 from April as wage growth figures utilised to determine the rise will render the elderly the "big winner" from today's economic data, presenting Rachel Reeves with another additional expense.
The triple lock enhancement mechanism, which was established 15 years ago, ensures the pension rises by whichever proves highest among 2.5 per cent, wage growth during the three months to July, or the inflation reading for the year to September, as reported by .
It has remained a persistent concern for economists engaged in fiscal policy, with former Resolution Foundation chief executive and current Treasury minister Torsten Bell alongside the Office for Budget Responsibility (OBR)'s board ranking amongst its most vocal detractors.
With wage growth including bonuses climbing by 4.7 per cent in July, the elderly will receive £12,534.60 annually from April under the new state pension.
The inflation-beating amount falls marginally below the personal allowance, which stands at £12,570, yet represents a substantial jump from the present level of £11,973, requiring the government to spend billions of pounds more on payments to those beyond working age.
The pre-2016 iteration of the state pension will climb from £9,175.40 annually to £9,607 per year.
Nye Cominetti, principal economist at the Resolution Foundation, described pensioners as the "big winner" as the divide in state support between younger and older generations was destined to widen further.
State pension could soon trump personal allowance
According to an analysis by Rachel Vahey, head of public policy at AJ Bell, pensioners could potentially receive a state pension higher than the personal allowance offered to working Britons from 2027, if the band remains frozen and the benefit increases by its minimum of 2.5 per cent.
Vahey highlighted that the Treasury now faces a challenging task in managing the additional cost worth billions from higher state pensions and whether it can maintain the triple lock.
"Removing the freeze on the personal allowance would come at significant cost to the Treasury at a time when the chancellor's fiscal headroom is already strained at best, while an overhaul of the triple lock would come with huge political risk before the next general election," Vahey stated.
"Needless to say, it's a headache Starmer and Reeves could do without ahead of a crucial Budget in November and economic and political pressure already beginning to swell both within the Labour Party and outside of it."
Political pressures
Political parties have been reluctant to commit to abolishing the triple lock.
Reform º£½ÇÊÓƵ has indicated it would review the uprating mechanism whereas opposition leader Kemi Badenoch labelled it "Conservative policy", seemingly dismissing claims that the Tories might abandon it.
The Labour government has made a manifesto pledge to preserve the triple lock, yet a fresh Pensions Commission has been established to examine savings rates amongst those approaching retirement over the coming decades.
The Commission is examining the mix of pension types whilst the government has initiated a separate review of the state pension age.
"It's entirely possible – if not likely – this latest state pension age review will advocate bringing forward that increase to the late 2030s to save future governments' money," Vahey said.
"Pensions minister Torsten Bell recently ruled out scrapping the triple lock guarantee, but as the state pension grows ever closer to the frozen personal allowance threshold it could be that the government is finally forced to address the question of how much the state pension should really offer, at what age, and how it can increase payments sustainably each year."
Earlier this year, OBR analysts indicated they anticipated state pension expenditure to climb from approximately five per cent of GDP to 7.7 per cent over the next fifty years owing to the triple lock and an ageing population.
It cautioned that governments could not sustain the triple lock pension as it cost three times more than initially projected.
