State pensions will rise by almost £500 next year, according to the release of new figures.
State pensions increase every April under the triple lock guarantee (Image: Getty)
Millions of state pensioners are set to receive a triple lock boost of 3.9% next year after new inflation figures were published. The new state pension is expected to increase by £489 a year to £13,036, while the basic state pension will rise by £374 to £9,989, in line with the 3.9% increase in average earnings.
State pensions are guaranteed to rise every April in line with either wage growth between July and September, inflation or 2.5%. With the Office for National Statistics confirming that inflation had risen to 3.5% in September, from 3.1% in August, this appears to be the metric the Government will base benefit rate increases on next year.
The full new state pension will exceed the frozen personal allowance threshold of £12,570. However, the Government has said pensioners who are wholly dependent on the new state pension – with no private pension – or the old “basic” pension, “with no increments” will not have to pay tax. Further details are expected to be announced in the Autumn Budget. It comes ahead of Labour’s planned ending of the pensions triple lock from 2030, when it will rise in line with inflation or 2.5%, breaking its link with average earnings.
Bob Tronson, head of pensions at InvestEngine, said: “Today’s Consumer Price Index (CPI) figures of 3.5% confirm what people expected: next year’s state pension increase is likely to be determined by the earnings metric. It also acts as a reminder of the significant impact earnings have had on the triple lock mechanism and why the government has chosen to remove it from calculations.”
He added: “Since the triple lock was introduced, the earnings figure has determined the majority of increases to the basic state pension and two of the three largest increases, including a huge 8.5% rise in 2024.” Mr Tronson warned that removing the triple lock “puts greater strain on people’s quality of life in retirement”.
The new full state pension will surpass the frozen personal allowance threshold in April (Image: Getty)
“Had the Government excluded the earnings metric from pension calculations and instead settled on a double lock in 2010, someone receiving the basic state pension would be £560 a year worse off today, while the full new state pension would be £688 lower,” he continued.
“The state pension already falls well short of providing a good standard of retirement on its own. Moving to a double lock will make it even more important for those still in work to start building their own retirement savings early, whether through a workplace pension or self-invested personal pension (SIPP), rather than relying on the state pension alone.”
Around 5.4million people receive the new state pension, and 7.9million receive the basic state pension, which applies to those who reached retirement age before April 2016.
Those receiving the new state pension will be liable for a theoretical tax bill of around £90 following the latest increase, although the Government has said retirees living on the contributory benefit alone will not have to pay income tax on it.
Catherine Foot, director of the Standard Life Centre for the Future of Retirement, said the increase will be “welcome news for millions of pensioners” but warned of “deepening uncertainty among those who aren’t yet retired”.
She added: “The triple lock has played an important role in improving pensioner living standards over the past 15 years … The goal must be a system that remains sustainable and affordable, while giving people clarity and a firm foundation on which to plan.”