State Pension could rise more than £500 next year

High inflation and strong wage growth mean the State Pension could be in line for an increase of between 4% and 5% next April.

Retirees could be set for a significant boost next April in a move that could pile more pressure on the chancellor.

Each year, the rate at which the State Pension increases is calculated using what's known as the triple lock system.

In short, this means looking at three figures:

• wage growth between May and July;
• inflation as determined by the Consumer Price Index in September;
• 2.5%.

Neither the inflation nor wage figures are yet available, but both are tracking well above the 2.5% figure.

Inflation is forecast to hit 4% when it is added to the mix.

Wage growth is higher still, having stood at 4.6% between April and June, just one month out from the vital figures that will be included in the calculations.

Going off these figures, it could mean the State Pension rises by somewhere between £470 and £540 for the 2026/2027 financial year, which starts in April.

‘Barely keeping up with rising costs’

That increase would be broadly in line with the £473 increase implemented for the current year, and is actually lower than the increases seen in the two previous years.

You can see a breakdown of annual increases by scrolling down to the table in this article.

Dennis Reed, who is a director at Silver Voices, a campaign group for the over 60s, told the Daily Express that these increases need to be seen in the context of soaring prices overall.

“A rise of 4% is barely keeping up with the cost of living,” he said, adding that many retirees either don’t get the full pension amount or are stuck on a less generous pension.

“They are getting by on a subsistence income and 4% of very little is still very little.”

Pressure on the chancellor

While there is no question that many retired households are struggling – Age UK estimates nearly one in five are in poverty – it’s also true that rapidly rising State Pension costs are causing a headache for the Government.

An official report released last month showed the cost of maintaining the State Pension triple lock is forecast to be three times higher by the end of the decade than its original estimate back in 2011.

What’s more, an increase of 4% for next year’s State Pension is likely to cost an extra £430m in payments.

Speaking about the rising costs, a consultant at Quilter, told The Telegraph: “The situation highlights how sensitive the triple lock is to inflation changes, and raises questions about its long-term sustainability.

“Political leaders have been reluctant to address the issue head-on, and the triple lock remains a political football kicked around from one government to the next.”

It comes as Chancellor Rachel Reeves is under pressure to find an extra £50 billion by 2029/2030 in order to balance the books.

To be clear, there is no suggestion that the Government is planning to ditch the triple lock.

However, it faces a huge task in trying to keep within its spending rules and meet spending commitments.