The state pension is expected to top £13,000 next April, putting pressure on public finances and reigniting debate over intergenerational fairness.
It is expected to rise by £488 to £13,036.40 a year, based on the latest official earnings figures, published on Tuesday.
The so-called “triple lock” pension policy ensures that annual benefits will increase either by average wages, inflation or 2.5%, whichever is higher.
Labor made a manifesto pledge to maintain the triple lock, but economists have warned the cost of the policy will mean difficult spending choices in next month’s Budget.
The policy is “mad,” Ruth Curtis, chief executive of the Resolution Foundation think tank, told the BBC.
The triple lock creates a “ratchet effect” in which “the standard of living of retirees rises even faster than that of the average worker,” she added.
The policy was introduced under the Conservative-Liberal Democrat coalition government.
Curtis told the BBC Today programme: “In no situation can you simply have pensions grow faster than income because income makes up the majority of the tax base.
“Over the past 20 years, the standard of living of retirees has increased three times more than that of ordinary workers.”
Average pay growth, including bonuses, slowed to 3.9% between May and July, according to the Office for National Statistics. However, it remains above inflation at 2.9%.