State Pension to rise by £460 for millions next year under triple lock – how much will you get?
MILLIONS of people will get a bumper rise of £460 to their state pension next year, new figures show.
Data published today revealed wages rose by 4% between May and July this year.
The figures have led experts to believe that wage growth will be the deciding factor in how much the state pension will rise by next April.
That’s because the triple lock system sees the state pension rise in line with whatever is highest out of: wages for May to July, 2.5% or September’s inflation figures.
Growth in employees’ average total pay was 4% in the three months to July, putting it above the current inflation rate of 2.2%.
That means that if inflation stays roughly where it is, pensioners on the new state pension could be looking at an extra £460 a year.
The move would increase the full new state pension from £11,502.40 to £11,962 per year.
Weekly it would mean a rise from £221.20 to around £230, an increase of almost £9 a week.
Meanwhile, older pensioners who retired before April 2016 will see their weekly payment rise from £169.50 to £176.30 – an increase of £6.80.
Annually, payments will rise from £8,814 to £9,167, adding £353 a year.
Although it’s worth noting, people on the old system who also have “additional” state pension (SERPS) will see that part of their pension rise only in line with inflation which hasn’t been published yet.
Inflation is currently at 2.2%, but we won’t know this month’s figure until it’s announced in October.
Any decision on a pension increase will be made by Secretary of State Liz Kendall ahead of October’s budget.
The state pension is increased each year in line with the triple lock mechanism, which all major political parties committed to before the general election in July.
Last week, Chancellor Rachel Reeves reaffirmed the Government’s backing of the triple lock until the end of this Parliament.
But this is a very expensive commitment, with the state pension already costing the government around £130billion a year.
Jon Greer, head of retirement policy at Quilter, said: “The news that the triple lock is likely to be uplifted by average earnings next year is a significant development for pensioners.
“However, the sustainability of the triple lock in the long term is questionable.
“It remains a contentious issue in pension policy, with no government willing to make drastic changes due to the potential backlash from a core voter base.”
It comes after the Chancellor came under fire for her decision to cut winter fuel payments.
The benefit, worth up to £300 this winter, will only be available to those on certain means-tested benefits, including pension credit, leaving 10million state pensioners worse off.
But the Chancellor defended the move, repeatedly telling MPs that increases to the basic state pension already mean that people are “£900 better off” than a year ago.
Ms Reeves said: “The basic state pension is worth £900 more than it was a year ago and will go up again in April next year because of the triple lock, which we have committed to for the duration of this Parliament.”
Some aren’t convinced the boost will mean as much to those hard-up households.
Steve Webb, partner at pension consultants LCP said: “Part of next April’s increase is simply to keep pace with rising prices. Based on the current inflation figure of 2.2%, the new state pension would need to rise by just over £250 simply for pensioners to stand still.
“Whilst an above-inflation increase of £460 will be welcomed, only the further £210 represents a real increase.
“And this is before allowing for the income tax which most pensioners will pay on their state pension rise. Those who lose £200 or £300 in Winter Fuel Payments will therefore still be worse off in real terms next April.”
What it means for tax
With tax thresholds frozen until April 2026, this increase will bring around 340,000 pensioners into tax for the first time, it’s been warned.
These pensions will get these letters for the first time next April when the next tax year begins.
Currently, over the next six weeks, HM Revenue & Customs (HMRC) is writing to 560,000 customers as part of its “simple assessment” process which assesses who needs to pay what tax.
It was expected that around 140,000 pensioners were going to receive a letter over the coming months, but because of a suspected increase in the state pension, an extra 340,000 will now likely get one.
Alice Haine, Personal Finance Analyst at Bestinvest said: “The bumper boost may feel comforting for pensioners still struggling with the fallout from the cost-of-living crisis, but heavy shadows cast by Labour’s pledge to ditch the winter fuel payment for all but the poorest retirees may take some of the shine off the news.
“Throw in frozen tax thresholds, with the full new state pension edging ever closer to surpassing the standard personal allowance of £12,570 – the point at which any income is liable for tax; the potential loss of the winter fuel allowance and the threat that Housing Secretary Angela Rayner may abolish a council tax break for households with only a single occupant and it’s easy to see why pensioners feel under siege.”
Ms Haine pointed out that pensioners who are set to lose the Winter Fuel Allowance might only find themselves £160 better off come April 2025 as the £300 deficit eats into a state pension increase.
How much is the state pension?
State pension payments increase every April.
This year, the full rate of the new state pension rose from £203.85 a week to £221.20 – rising 8.5% in line with last September 2023’s wage growth.
This equates to £11,502.40 in total over a year.
This is what the state pays those who reach state pension age after April 6, 2016.
The amount of new state pension you receive depends on your National Insurance (NI) record throughout your adult life.
If you have made at least 35 years of qualifying NI contributions or NI credits you may qualify for the maximum amount.
You can get NI credits if you’re caring for a relative or raising children instead of working, for example.
How does the state pension work?
AT the moment the current state pension is paid to both men and women from age 66 - but it's due to rise to 67 by 2028 and 68 by 2046.
The state pension is a recurring payment from the government most Brits start getting when they reach State Pension age.
But not everyone gets the same amount, and you are awarded depending on your National Insurance record.
For most pensioners, it forms only part of their retirement income, as they could have other pots from a workplace pension, earning and savings.
The new state pension is based on people’s National Insurance records.
Workers must have 35 qualifying years of National Insurance to get the maximum amount of the new state pension.
You earn National Insurance qualifying years through work, or by getting credits, for instance when you are looking after children and claiming child benefit.
If you have gaps, you can top up your record by paying in voluntary National Insurance contributions.
To get the old, full basic state pension, you will need 30 years of contributions or credits.
You will need at least 10 years on your NI record to get any state pension.
How do I claim the state pension?
You won’t automatically get the state pension – you need to claim it once you’re eligible.
You should receive a letter no later than two months before you reach state pension age, explaining what to do.
You can find out more here.
You can choose to defer getting the state pension – you don’t have to take it as soon as you are eligible when you reach state pension age.
Leaving your state pension untouched can boost the amount you eventually get.
If you opt to defer your state pension, your entitlement increases by the equivalent of 1% for every five weeks you do so.
As the state system can be tricky to navigate, a key part of any pension planning involves requesting a state pension forecast.
This will help you get your head around how much you could be eligible to receive, and from what age.
What are the different types of pensions?
WE round-up the main types of pension and how they differ:
- Personal pension or self-invested personal pension (SIPP) – This is probably the most flexible type of pension as you can choose your own provider and how much you invest.
- Workplace pension – The Government has made it compulsory for employers to automatically enrol you in your workplace pension unless you opt out.
These so-called defined contribution (DC) pensions are usually chosen by your employer and you won’t be able to change it. Minimum contributions are 8%, with employees paying 5% (1% in tax relief) and employers contributing 3%. - Final salary pension – This is also a workplace pension but here, what you get in retirement is decided based on your salary, and you’ll be paid a set amount each year upon retiring. It’s often referred to as a gold-plated pension or a defined benefit (DB) pension. But they’re not typically offered by employers anymore.
- New state pension – This is what the state pays to those who reach state pension age after April 6 2016. The maximum payout is £203.85 a week and you’ll need 35 years of National Insurance contributions to get this. You also need at least ten years’ worth to qualify for anything at all.
- Basic state pension – If you reach the state pension age on or before April 2016, you’ll get the basic state pension. The full amount is £156.20 per week and you’ll need 30 years of National Insurance contributions to get this. If you have the basic state pension you may also get a top-up from what’s known as the additional or second state pension. Those who have built up National Insurance contributions under both the basic and new state pensions will get a combination of both schemes.
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