Millions of pensioners are in line for a nearly £500-a-year boost to their state pension next April - but the increase could also trigger a tax sting.
The new state pension is expected to rise by 3.9 per cent, taking the weekly payment from £241.30 to around £250.70.
That would mean an annual payment of £13,036.40, an increase of £488 a year.
The expected rise follows the latest official earnings figures, which showed average wages including bonuses grew by 3.9 per cent between May and July.
Under the Government's so-called triple lock, state pensions rise each year by whichever is highest of average earnings growth, inflation or 2.5 per cent.
With inflation currently at 2.9 per cent, earnings growth is expected to win this year's triple-lock calculation.
The final increase will not be confirmed until September's inflation figure is published next month.
State pension could breach tax threshold
The increase could have an unwelcome consequence for some pensioners because the new state pension would move above the £12,570 personal allowance.
Almost 13 million people receive the state pension in the UK.
Based on the projected 3.9 per cent rise, someone receiving the new state pension could have annual income of around £13,036 – above the current tax-free allowance.
However, the Government has previously promised that pensioners who rely solely on the state pension would not have to complete a tax return or be chased to pay the tax.
Pension consultants LCP has warned that the proposed tax exemption could benefit only a small proportion of pensioners.
Its analysis suggests just one in 16 pensioners could benefit from the Government's proposed concession.
Steve Webb, partner at LCP, said: “Under the triple lock formula, the new state pension will rise next April by the highest of the growth in wages, prices or 2.5%. Based on today’s figures, it is highly likely that it will be average earnings growth which comes out on top.
"Those on the new state pension can expect to see an increase of nearly £500 per year next April. But the sting in the tail is that this will take the standard rate of the new state pension above the tax threshold.
"The Government’s plans to address this point are a mess, and likely to benefit only a small fraction of pensioners. They will also create unfairness between different groups of pensioners and between pensioners and low-paid workers, who do not qualify for any exemption."
Experts warn over cost of triple lock
While pensioners are set for a sizeable increase, economists have warned about the growing cost of the triple lock.
Ruth Curtice, chief executive of the Resolution Foundation think tank, described the policy as "crazy" and said it was creating a "ratchet effect" where "pensioners' living standards grow even faster than just a typical worker,".
Curtice told the BBC's Today programme: "It's not affordable in any situation to simply have pensions rising faster than earnings because earnings are a big part of the tax base.
"Pensioners have seen living standards grow three times more than typical workers over the last 20 years."
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Liam McLaughlin, an associate economist at the National Institute of Economic and Social Research, said the increase added "fiscal pressure at a time when the triple lock is already under scrutiny".
The Office for Budget Responsibility had previously assumed a 3.7 per cent triple-lock increase for next year, meaning a 3.9 per cent rise would be slightly higher than expected.
Labour has pledged to retain the triple lock, but the rising cost is likely to add pressure to the Government ahead of next month's Budget.
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