Retirees could be in line for another significant increase to the state pension next year if the conflict in the Middle East keeps energy prices high and drives up inflation, experts say.
The Office for Budget Responsibility (OBR) has said inflation could remain at around 3 per cent by the end of the year if oil and gas prices stay elevated due to the war in Iran.
Oil prices have surged over the past few weeks amid disruption to key shipping routes, such as the Strait of Hormuz, a vital route for global energy supplies. Economists say higher wholesale prices are likely to feed through to household energy bills, pushing up inflation.
The state pension rises each April under the “triple lock” mechanism, which guarantees it increases by the highest of inflation in the previous September, wage growth between May and July, or 2.5 per cent. Higher inflation could therefore mean a larger increase for retirees in 2027.
Pensioners benefited from significant increases following Russia’s invasion of Ukraine in 2022, which triggered a spike in energy prices and pushed inflation to a peak of 11.1 per cent in October that year.
The state pension rose by a record 10.1 per cent in April 2023, followed by an 8.4 per cent increase in 2024. This April, pensioners are already set to receive another bumper 4.8 per cent rise – well above the current inflation rate – increasing the full new state pension by £575 to £12,547.60 a year.
Forecasts for what inflation will be by September vary. One forecaster, Pantheon Macroeconomics, suggests it could be around 3.1 per cent. This would mean the full new state pension rising to around £12,937 per year – just under £400.
Mike Ambery, retirement savings director at Standard Life, said: “The conflict in the Middle East has already pushed oil prices sharply higher, and the key question now is how far those increases feed into wider energy costs – including the wholesale prices that shape the UK energy price cap – and ultimately, inflation.
“If energy prices continue to climb, this could have implications for government spending commitments, including the state pension under the triple lock.”
He added that while an increase to the state pension would be good news for retirees, the triple lock mechanism is bad news for the public finances, at a time when the government is already struggling to balance its books and avoid raising taxes.
“With the state pension already one of the largest areas of public expenditure, inflation coming in higher than expected would place additional pressure on the public finances and renew questions about the long‑term sustainability of the state pension and the triple lock,” Mr Ambery said.
Steve Webb, partner at pension consultants LCP, warned that while pensioners could see a generous rise compared with workers’ pay increases, that would not necessarily mean they are better off.
“Although the state pension is likely to rise next year in line with inflation, which should cushion the blow, pensioner inflation is likely to be above the headline figure, leaving many pensioners out of pocket,” he said.
“A hike in energy costs is likely to be particularly bad news for pensioners, for whom home fuel bills are often a large part of their budget.
“To compound this, the frozen tax threshold means that for many pensioners the whole of their pension rise will be subject to tax at least at 20 per cent, leaving them even further out of pocket.”
Derence Lee, Chief Finance Officer at Shepherds Friendly, said: “With the personal allowance frozen at £12,570 until 2031, each rise in the state pension increases the likelihood that more pensioners will be drawn into paying income tax for the first time.
“Even relatively small amounts of additional income, such as a private pension or part-time earnings, could then push them over the threshold.”
How to boost your state pensionIf you don’t receive the full state pension or aren’t on track to do so, you might be able to boost the amount you get.
Fill in gaps in your record by buying years
You typically need 35 qualifying years of National Insurance (NI) contributions to receive the full new state pension, and at least 10 years to get any state pension.
These qualifying years can be earned by paying NI through work or by receiving certain benefits. If you have a gap in your record, you can pay to top up some of those years.
You can check your NI record on the Government website to see how many years you already have, and you can pay voluntary contributions for up to the past six years. The cost depends on the tax year you’re paying for.
Check if you can fill in gaps for free
You might be able to fill in gaps for free, such as through NI credits, which count as qualifying years towards your state pension.
You can get credits for caring for receiving child benefit for a child under 12, for example. Some claims can also be backdated.
It’s also worth double checking your record to make sure there aren’t any errors.
Claim pension credit if you’re on a low income
Pension credit doesn’t explicitly affect your state pension, but it looks at your entire pension income and tops it up to a minimum level if you get below a certain amount.
For the 2025/26 tax year, pension credit tops up weekly income to a threshold of £227.10 for single people and £346.60 for couples.
Claiming it can also entitle you to other benefits, such as a free TV licence.
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