The State Pension could climb by more than £550 next year thanks to the triple lock, as earnings growth outpaces inflation.
The State Pension could rise to more than £12,500 a year if earnings growth remains at current levels.
With average earnings growth including bonuses currently running at 4.6% with just one month of data still to be published, increases are expected to outpace inflation.
If the 4.6% rate were maintained in September, the new State Pension would rise annually by £551, taking it to around £12,524 a year from £11,973.
That £551 uptick could see pensioners pulled into paying income tax amid the threshold freeze, warned pension consultancy Broadstone.
However, if earnings growth falls dramatically in the next month, then the next determinant for an uprate will be the inflation figure. If September’s inflation figure matches the Bank of England’s projection of 4%, the State Pension would increase by around £480 from April 2026 – lifting it to £12,452 per year.
While the increase is unlikely to be enough to tip the full new State Pension over the personal tax allowance, it is still likely to cause even more pensioners to be liable for income tax given the ongoing freeze to the personal tax allowance at £12,570 a year.
Source: Broadstone
The latest HMRC data shows 8.7m people of State Pension age or older are projected to pay income tax on retirement income in 2025/26, a rise of around 420,000 compared to the previous year and up 1.85m from 10 years ago.
David Brooks, head of policy at Broadstone, said: "Another significant increase to the State Pension now looks inevitable given the strong growth in average earnings and rising inflation.
“The good news is this will provide further financial assistance to pensioners in light of ongoing cost-of-living pressures and the reliance of many retirees on the State Pension as their main source of income.
"The bad news is that the rising costs of the benefit risks creating growing tension between today’s taxpayers who fund the system and current pensioners who rely on it. The Government and Pensions Commission will be under pressure to confront this challenge as part of the independent State Pension age review.”
He said it seems inevitable that calls to introduce means-testing will grow louder. He added: “The persistence of the Triple Lock has created a steady rise in costs without clear long-term policy direction. As the retired population grows and depends increasingly on today’s workers to fund the system, some form of change is unavoidable.”