The rise in the state pension next year may be smaller than expected, according to recent economic data, with warnings that pensioners could face tighter budgets.
The “triple lock” system, which ensures state pensions rise in line with the highest of earnings growth, inflation, or 2.5%, could see a lower increase if wage growth continues to cool. This could have significant implications for millions of pensioners relying on these increases to manage living costs.
Experts are now cautioning that the economic slowdown, evident in recent figures, could impact the state pension rise. While inflation has moderated, and earnings growth remains positive, both are at risk of further weakening, especially if the economic downturn persists.
According to finance experts, the uncertainty surrounding next year’s state pension increase may leave many pensioners with less financial flexibility.
Economic slowdown could limit state pension rise
Recent data reveals that the UK economy contracted by 0.3% in April 2025, following a modest 0.2% growth the previous month.
This slowdown is expected to affect wage growth, which is a key factor in determining the annual state pension increase. Under the “triple lock,” pensions are set to rise according to whichever is higher between earnings growth, inflation, or a guaranteed minimum of 2.5%.
Currently, wage growth is the highest factor at 5.3%, but experts warn that ongoing economic challenges could lead to a reduction in this figure.
According to Amy Knight, personal finance expert at NerdWallet UK, “If stunted growth continues this summer, a weaker labour market could follow. Employment data out this week shows a fall in the number of employees on company payroll. At the same time, growth in pay was lower than the previous three-month period. If growth in pay keeps cooling, this would drag down the average earnings figure, potentially resulting in a smaller state pension increase in April 2026.”
Potential consequences for pensioners
Kate Smith, head of Pensions at Aegon, added that the outlook for pension increases appears “increasingly unlikely” to match previous years, particularly the 4.1% rise seen in April 2025.
While inflation is expected to briefly rise before returning to the Bank of England’s 2% target, the lack of economic growth may limit wage increases, thus reducing the state pension’s growth.
For pensioners, these developments may be concerning, as the state pension increase plays a vital role in managing day-to-day living expenses.
As Knight advised, pensioners should take proactive steps to manage their finances by shopping around for better deals on household bills and considering eligibility for additional benefits such as Pension Credit or Housing Benefit.