State pension could rise by more than £400 next year as triple lock to stay in place
THE state pension could rise by more than £400 next year as the pension triple lock remains in place.
It comes as the Treasury has crunched the numbers and is certain that the increase in April will be dictated by the average wages figure for July, it’s been reported.
The amount pensioners get from the state rises every year in order to keep up with the cost of things like food and household bills.
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.
Internal treasury calculations, seen by the BBC, show that changes would take the state pension to around £12,000 in 2025/26, from £11,501 currently.
It’s important to note though that this is for those entitled to a “full” state pension, how much individuals get is based on the number of qualifying years they’ve accrued.
This comes following the £900 increase in 2023 when payments increased by 8.5%, which saw the full state pension rise to £221.20 a week from £203.85.
Pre-2016 retirees who may be eligible for the secondary state pension could see a £300 per year increase.
However, it’s worth noting that nothing has been confirmed just yet.
Any decision on a pension increase will be made by Secretary of State Liz Kendall ahead of October’s budget.
The commitment is an expensive election promise on the £130billion a year state pension bill made by all the main parties.
Chancellor Rachel Reeves on Monday reaffirmed the Government’s backing of the triple lock until the end of this Parliament.
According to the Office for National Statistics (ONS), total earnings, including bonuses, increased by 4.5% annually in June.
It means, as long as it remains at around the same level, that the wage growth figure will most likely be used to determine next year’s state pension uprating.
However, households will still need to wait until September 10 to learn exactly how much their state pension will rise by in April 2025.
Jon Greer, head of retirement policy at Quilter: “The news reported today that the triple lock is likely to be uplifted by average earnings next year, with confirmation expected from next week’s average total pay figure, 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.
“Given recent changes to winter fuel payments which spurred immediate calls for a rethink due to the number of people who will struggle to pay their bills this winter as a result, any alterations to the triple lock by Labour seem entirely remote and more so given Rachel Reeves’ recent confirmation that it would stick by the policy.”
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.”
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.
What age do I get the state pension?
In response to rising life expectancy, the age at which you become eligible to receive the state pension has been going up.
The age is now 66 for both men and women and is set to reach 68 by 2039.
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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