1st October 2026
For households trying to work out what next year might look like, there is an obvious question after adding up the rising bills.
What is happening to the money coming in?
Council tax has risen and food prices are much higher than they were before the cost-of-living crisis. Energy bills remain a concern and diesel has pushed through £2 a litre and heating oil has moved dramatically up in price.
But wages and pensions are rising too.
The question is whether they are rising fast enough.
For pensioners, there is already a fairly good indication of what could happen next April.
The State Pension is protected by the Government's triple lock commitment. Each year, the increase is based on whichever is highest of average earnings growth, inflation or 2.5%. The earnings figure used for the April 2027 increase has now been published and currently points to a 3.9% increase, although September's inflation figure is still to be published and the final uprating calculation has yet to be confirmed.
If 3.9% is ultimately the figure used, the full new State Pension would rise from £241.30 a week to about £250.70.
That would be an increase of about £9.40 a week, or roughly £489 over a full year.
That sounds like useful news.
And it is.
But there is an important part of the story which receives much less attention.
Not every pensioner receives the new State Pension
The new State Pension was introduced on 6 April 2016.
People who reached State Pension age before that date remain under the old system. Their State Pension is based on the previous arrangements, consisting of the basic State Pension plus, where applicable, an additional State Pension built up through schemes such as SERPS and the State Second Pension.
The difference between the two headline figures is substantial.
For 2026/27, the full new State Pension is £241.30 a week.
The standard old basic State Pension is £184.90 a week.
That is a difference of £56.40 a week, or about £2,933 a year.
That does not mean every older pensioner receives only £184.90.
Some receive an additional State Pension on top. Others have workplace or private pensions built up during their working lives.
But some older pensioners have relatively little additional State Pension.
And this is where the distinction becomes important when discussing whether pensions are keeping up with the cost of living.
The two generations of pensioners are not necessarily starting from the same level of State Pension income.
Why can some older pensioners receive less?
The old system was much more complicated.
Before 2016, workers could build up an additional State Pension through arrangements including SERPS and the State Second Pension.
But many workers were also contracted out.
Contracting out meant that, in return for paying National Insurance at a lower rate, some of their National Insurance contributions were effectively associated with an occupational or private pension rather than the Additional State Pension.
The Government explains that someone who was contracted out could therefore have little or no Additional State Pension because they were building up a workplace pension instead. Their basic State Pension itself was not reduced because of contracting out.
This is particularly relevant to people who spent much of their working lives in occupational pension schemes.
Someone may therefore have a relatively modest State Pension but a substantial workplace pension.
Another person may have a larger State Pension because they accumulated Additional State Pension.
Another may have neither a large workplace pension nor much Additional State Pension.
So simply comparing someone's State Pension with somebody else's can be misleading.
The new system is simpler – but the headline comparison is striking
The new State Pension was designed to be easier to understand.
Its full rate is now much higher than the basic State Pension under the old system.
But people who were already pensioners when the new system began did not suddenly move across to the new rate.
That creates a situation which is increasingly relevant as the years pass.
The 2016 reform is now ten years old, but there are still millions of people receiving pensions calculated under the previous system.
For someone looking at their household budget, the difference can be quite significant.
Suppose the full new State Pension rises by 3.9% in April 2027.
It would be approximately £250.70 a week.
If the old basic State Pension also receives a 3.9% increase, the £184.90 rate would become roughly £192.10 a week.
The gap would therefore remain close to £59 a week, or more than £3,000 over a year.
Again, this is a comparison of the headline rates, not a statement that every old-system pensioner receives only the basic amount.
But it illustrates why some older pensioners can feel that they are not benefiting from the much higher headline figure quoted for the new State Pension.
A pension increase does not automatically mean a better standard of living
There is another problem.
Even for someone receiving the full new State Pension, an increase of around 3.9% has to be viewed against the household's actual expenditure.
A pensioner may be paying more for food.
Council tax may have increased.
Electricity is more expensive.
Diesel may affect the cost of deliveries and services.
Heating oil can be particularly volatile.
And then there are insurance, repairs, prescriptions where charges apply, household maintenance and other unavoidable expenses.
So an extra £9 or £10 a week does not necessarily translate into £9 or £10 more spending money.
It may simply cover part of the higher cost of keeping the household running.
That is why there is such a big difference between income growth and living-standard growth.
Workers face the same calculation
The same issue applies to people in employment.
Average total earnings increased by 3.9% in May to July 2026, while regular earnings excluding bonuses increased by 3.5%. But there are substantial differences between sectors and individual workers. ONS data showed private-sector regular pay growth at around 2.9%, compared with 6.3% in the public sector, although the public-sector figure is influenced by the timing of pay awards.
That means there is no single pay increase experienced by British households.
One employee may receive 5%.
Another may receive 3%.
Another may receive nothing.
Someone changing jobs may receive a much larger increase.
Some workers may find that their wages rise more slowly than their own household costs.
So again, the question is not simply:
"Did my wages go up?"
It is:
"Did my disposable income go up after my essential costs were paid?"
That is a much more meaningful measure.
The lowest-paid workers have another decision coming
The National Living Wage for workers aged 21 and over is currently £12.71 an hour, following a 4.1% increase in April 2026.
The Low Pay Commission is considering the rates that will apply from April 2027 and has been asked to take account of inflation, living costs, the labour market and the effect of its recommendations on employers.
This will be particularly important for households on low incomes because they tend to spend a larger proportion of their income on essentials.
A household that spends most of its income on housing, food, energy and transport has less flexibility than a higher-income household.
It cannot respond to a rise in the weekly shopping bill simply by cutting its savings or postponing a foreign holiday.
It may already have very little discretionary spending.
The Highlands add another complication
For households in Caithness, the Highlands and Scotland's islands, national averages can conceal some of the pressures caused by geography.
A rural family may need a car because public transport is limited.
An older home may depend on heating oil.
Shopping may involve longer journeys.
Goods may travel much further before reaching the local shop.
Healthcare and other services may require substantial travel.
So even if two households receive exactly the same pension increase, their actual experience can be different.
A 3.9% pension increase does not buy exactly the same amount of real life in every part of Britain.
That is one reason why the debate about incomes and inflation should not stop at national averages.
The October Budget will provide another piece of the puzzle
The Government's Autumn Budget is due on 28 October 2026.
By then, September's inflation figure will have been published, giving a clearer indication of the State Pension uprating.
The Low Pay Commission's recommendations for the 2027 National Living Wage should also be available.
At the same time, households will be looking anxiously at the other side of their budgets.
How much will energy cost?
What happens to fuel?
Where does food inflation go?
Will council tax rise again?
What will happen to benefits and tax allowances?
These decisions will interact.
A pension increase or wage increase can look substantial when viewed on its own.
It can look much less impressive after the household's other bills have been taken into account.
There is an important lesson in the different State Pension rates
The continuing difference between the old and new State Pension also illustrates something which is often overlooked.
A single headline State Pension figure does not describe every pensioner's income.
Some older pensioners are receiving the old basic State Pension plus Additional State Pension.
Some have workplace pensions.
Some have private pensions.
Some were contracted out.
Some are receiving less than the full new State Pension because of their individual National Insurance histories or because of the transitional rules surrounding the 2016 reform. The Government says that people who were contracted out before 2016 may have an amount deducted from their new State Pension calculation because they were building up another pension instead.
That means the real financial picture is personal.
It also explains why two pensioners living next door to each other can have quite different incomes even if they had similar careers.
What households will really be watching
Perhaps the most important figure for families and pensioners in 2027 will not be the percentage increase announced for wages or pensions.
It will be what is left after the essentials have been paid.
That is particularly important now because several household costs are moving in the wrong direction at roughly the same time.
Food prices are already much higher than before the pandemic.
Council tax has increased in Highland.
Energy costs remain uncertain.
Diesel has passed £2 a litre.
Heating oil remains highly volatile.
And Cornwall Insight is forecasting a potentially substantial rise in the energy price cap in January, although that forecast could change before Ofgem announces the actual cap.
Against that background, a wage or pension increase of 3%, 4% or even 5% may not feel like a substantial improvement.
It may simply prevent the household from falling further behind.
That is particularly important for older pensioners who are still receiving State Pension income under the arrangements that existed before April 2016.
The new State Pension has now been in place for a decade.
But the old pension has not disappeared.
And when politicians or commentators quote the £241.30-a-week full new State Pension, some older pensioners may quite reasonably look at their bank account and wonder why their figure is considerably lower.
The answer lies in the complicated history of Britain's State Pension system.
The more important question for everyone, however, is a much simpler one.
After all the increases in wages and pensions have been announced, will households actually have more money left at the end of the month?
That may prove to be the measure of the cost-of-living squeeze that matters most.