If the state pension rises to £13,000 next year, it will probably breach the UK’s tax-free personal allowance (currently £12,570) – the amount you can earn before paying income tax.
However, pensioners who don’t receive any other income might still be exempt from paying tax if the state pension exceeds the personal allowance.
The House of Commons Library explains:
In the 2025 Budget the government announced the personal allowance would be frozen at its current level up to April 2031.
It also announced that pensioners whose sole income is the basic or new state pension would not have to pay small amounts of tax via simple assessment from 2027/28 if the new or basic state pension exceeded the personal allowance from that point. To date the government has not published any further details of how this is to be done.
Martin Beck, chief economist at WPI Strategy, has spotted that private sector employment has dropped since the start of the year.
He says:
“The latest UK jobs numbers suggest the labour market remains subdued. Unemployment was little changed over the summer, but payroll employment and vacancies continued to drop.
“Payroll employment fell 26,000 in August, while July’s 13,000 fall was revised bigger. The public sector continued to flatter the numbers. Private-sector employment fell, leaving it almost 141,000 lower than at the start of the year, but the public sector headcount continued to rise, up almost 36,000 since January.
Resolution: Pensioners are big winners today, private sector workers are the losers
The Resolution Foundation have spotted that private sector pay growth in the UK has fallen to its weakest level since the start of the decade.
At just 2.9% per year in May-July, pay growth in the private sector is the joint lowest rate since October 2020.
Worryingly, Resolution Foundation also forecasts that wages are “set to shrink significantly in the second half of the year as inflation rises”.
Julia Diniz, economist at the Resolution Foundation, said:
“The big winners from today’s ONS data are pensioners, who are set for another large rise in the state pension next spring thanks to the triple lock.
“The biggest losers are workers in the private sector who are already earning less than they were last autumn. With wage growth slumping to its lowest rate in nearly six years, the UK’s private sector pay squeeze will tighten over the coming months as inflation rises.
“With unemployment settling at around five per cent and the number of job vacancies continuing to fall, conditions are also tough for those looking for work, especially young people.”
The slowdown in total pay growth over the summer, and the drop in payrolled employeers, may deter the Bank of England from raising interest rates at its next meeting later this week.
The money markets indicate there’s a 67% chance that the Bank holds interest rates on Thursday.
Sanjay Raja, chief UK economist at Deutsche Bank, says the labour market still looks “sluggish”:
While economic growth continues to outpace expectations, the staggering fact is that it’s happening with fewer employees. Productivity growth, by definition, is pushing higher.
That said, there’s no evidence yet that the UK labour market is out of the woods just yet. For the MPC, this will matter. A still sluggish labour market will give the Bank some confidence that Bank Rate remains restrictive.
Supporters of the pension triple lock point out that it has lifted the living standards of the UK’s poorest pensioners.
Critics, though, argue that it has been more expensive than expected, and ties the government into increasing the pension bill each year regardless of economic conditions.
The Institute for Fiscal Studies (IFS) have worked out that by 2050, the triple lock could have cost as much as £40bn, although the calculations are rather murky.
They say:
The triple lock has increased annual spending on the state pension by around £16 billion, compared with uprating in line with average earnings growth since 2010.
Current forecasts from the Office for Budget Responsibility suggest that the triple lock will push up state pension spending by £600 million per year in 2029–30, compared with a baseline of increases in line with average earnings.
While this is small compared with total state pension spending (of £154 billion per year), each increase adds up over time and the triple lock’s ratcheting effect permanently locks in increases in spending. This is both costly and very uncertain in the long run, because it depends on the exact path of inflation and earnings.
We estimate that by 2050 keeping the triple lock would, in expectation, cost around £20 billion per year in today’s terms. But the high uncertainty means that, in fact, the cost could reasonably be anywhere between £5 billion and £40 billion per year.
Hargreaves Lansdown: Pensioners to get £490 boost under triple lock
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, is also expecting the state pension to rise by 3.9% next year under the triple-lock system.
Morrissey explains:
“Pensioners stand to be almost £490 better off next year as today’s earnings figures have a huge impact on next year’s state pension. The data, alongside September’s inflation figure and 2.5%, is a key component of the triple lock formula used to increase state pensions. With CPI inflation currently sitting at 2.9% it seems increasingly likely that today’s 3.9% increase in average earnings will be the figure used.
This would put someone on the full new state pension on course to receive £250.70 per week from next April – up from the current £241.30 per week. Someone on a full basic state pension would receive £192.10 per week – up from £184.90.
State pension set to rise by 3.9% after wage growth data
The UK state pension is set to rise by 3.9% next year, it appears, following today’s wage growth figures.
Under the triple-lock system, pensions rise by the highest of average earnings, inflation, or 2.5%.
So today’s data showing that total pay rose by 3.9% over the last year is likely to be the figure used to set the pension increase (unless we get a surge of inflation in September’s data to 4% or higher).
Assuming, of course, that the government continue to stick with the triple-lock – as there are calls to suspend it.
Jon Greer, head of retirement policy at Quilter, says:
“Today’s earnings figures show wage growth running at 3.9%, which puts a State Pension increase of a similar magnitude firmly on the cards next April under the triple lock.
“If confirmed, this would see the full New State Pension rise to over £13,000. While we will need to wait for September’s inflation figure before the uprating mechanism is formally confirmed, inflation is currently expected to remain below earnings growth, making an earnings-led increase the most likely outcome.
“For pensioners, another above-inflation increase will be welcome news and reflects the success of the triple lock in strengthening the value of the State Pension over time. The State Pension remains a crucial source of retirement income for millions of people and continues to provide the foundation upon which many build the rest of their retirement plans.
Vacancies dip again.
The estimated number of vacancies in the UK decreased in the latest quarter.
The ONS esimates that in June to August there was a decrease of 8,000 (1.1%) to 702,000, compared with March to May 2026.
ONS director of economic statistics Liz McKeown says:
“Vacancies remain at their lowest level outside the pandemic period for more than a decade, with smaller businesses continuing to report that increased labour costs are affecting hiring decisions.”
The Office for National Statistics has also found that the number of ‘workforce jobs’ in the UK has dropped.
It says:
The estimated number of workforce jobs in the UK was 36.7 million in June 2026. This is a decrease of 48,000 (0.1%) from March 2026, with decreases of 43,000 (1.0%) in the self-employment jobs component and a decrease of 10,000 (0.0%) in the employee jobs component.
Introduction: UK jobs market under the spotlight
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
UK companies continued to shed jobs over the summer, as wage growth slowed, new data shows.
The latest labour market report, just released, shows that the number of employees on company payrolls fell by 26,000 in August, and dropped by 145,000 compared with August 2025.
Despite that drop, though, the UK’s unemployment rate for people aged 16 years and over remains at 4.9% for the May to July quarter.
Workers’ pay packets are being squeezed, though, especially in the private sector.
Total pay growth (including bonuses) slowed to 3.9% in May to July, down from 4.2% on the previous three-month period. Regular pay (excluding bonuses) growth stuck at 3.5%.
But while private sector pay rose by 2.9%, annual average regular earnings growth was 6.3% for the public sector. That’s because NHS staff pay rises were paid out earlier this year.
ONS director of economic statistics Liz McKeown says:
“The labour market remains broadly stable, with employment and unemployment rates largely unchanged in the latest period. However, payrolled employee numbers continue to edge down, with falls over the past year particularly evident in the retail and hospitality sectors.
“Regular wage growth has remained relatively stable in recent months, while total pay growth, which includes bonuses, has eased and was last lower nearly six years ago. There remains a notable difference between public and private sector pay growth, with public sector figures continuing to be affected by the timing of NHS pay awards this year.”
The agenda
7am BST: UK labour market report
8am BST: UK grocery inflation report
10am BST: Eurozone industrial production report for July
1.30pm BST: US retail sales report
