The UK state pension is set for a higher-than-expected increase following the largest growth in annual wages since records began in 2001.

The Office for National Statistics’ (ONS) August 2023 bulletin showed annual growth in total pay (which includes bonuses) of 8.2 per cent in April to June 2023.

Under the triple lock pledge, state pensions rise in line with whichever is the highest out of three factors: Wage growth, inflation or 2.5 per cent.

Currently, wage growth is higher than Consumer Prices Index (CPI) inflation, which was at 7.9 per cent in June.

September’s CPI figures have been the point of reference for increases since the triple lock came into operation, so next month’s figures will be crucial.

The August bulletin showed a wage increase that was significantly higher than the government had anticipated; in March, state pensions were expected to rise by 6.2 per cent.

If September’s continue to be high, state pension increases will follow suit.

Aegon pensions director, Steven Cameron, said: “The latest earnings growth figure is 8.2 per cent, now above the latest inflation figure of 7.9 per cent.

"If the earnings growth figure announced next month stays at this level, this guarantees state pensioners 8.2 per cent next April, even if inflation continues to fall.”

And according to LCP, if September’s wage growth is at 8.2 per cent, the government could need to find “an extra £2 billion or so” compared with the assumption of a 6.2 per cent increase.

The triple lock has been a subject of fierce debate, as earnings volatility during the pandemic and recent high inflation have put pressure on the government to make difficult decisions.

Pandemic-related distortions to wage figures led to the suspension of the earnings element of the triple lock in April 2022; September 2021’s CPI inflation figures meant pensioners saw an increase of 3.1 per cent in that year.

However, April 2023 brought an increase of 10.1 per cent, due to lofty inflation rates the previous autumn.

“If earnings growth remains above price inflation in the coming months, state pensioners may be winners, particularly as they are less likely to be affected by rocketing mortgage costs and could also be benefitting from higher interest rates on cash savings,” Cameron said.

But the greater-than-expected increase will bring more scrutiny to the triple lock. LCP partner Steve Webb said: “An extra £2 billion bill arising from higher than expected earnings growth seems quite plausible. But it is unlikely that this would lead the government to break the triple lock, especially in the run-up to a likely 2024 general election.”

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