Full state pension will rise by nearly £500 next April under the triple lock
The full state pension will rise by £9.40 a week to around £250.70 from next April under the triple lock guarantee.
On a yearly basis, it will rise by £489 – climbing from £12,547 to £13,036 – delivering another inflation-beating rise for pensioners.
Under the triple lock the state pension increases every year by the highest of 2.5 per cent, inflation or average earnings growth – and the last of these outstripped the rest this time.
Wage growth came in at 3.9 per cent, meaning that is how much the full, new state pension will rise in April 2027.
It was confirmed after the announcement today that the Consumer Prices Index inflation rate came in at 3.5 per cent in September.
It means the headline state pension will top £13,000 from next spring and some of it will be taxed, as it breaches the tax-free personal allowance.
Andy Burnham wants to ditch the triple lock if Labour is elected again but for now it is still pushing up state pension payments by more than inflation
People who retired before spring 2016 on the old basic state pension should see a £7.20 a week rise to £192.10, or around £10,000 a year.
However, those on the basic rate also get hefty top-ups, called S2P or Serps, if those were earned earlier in life, and these elements of people’s payments will rise in line with the latest 3.5 per cent inflation figure.
Prime Minister Andy Burnham recently announced plans to ditch the state pension triple lock in favour of a double lock linked to inflation.
He said in his speech to Labour’s annual conference that from April 2030 the state pension would increase every year according to the highest of price rises or 2.5 per cent.
This would knock average wage growth out of the triple lock – although Mr Burnham said the state pension would still hold its value relative to earnings over time, so pensioners continued to share in economic growth.
He said the overhaul would create ‘significant savings’ that would be used to fund a new National Care Service.
However, the plans for 2030 hinge on Labour or another party that favours the policy winning the next election.
Meanwhile, unless the headline state pension is your sole income, from next year you will see at least some of it clawed back in income tax as it will bust the basic rate threshold of £12,570.
The Government says it is committed to letting pensioners off paying income tax if their ‘only income is the full new or basic state pension without any increments’, but details are still pending.
Many people with any private work or personal pensions are already taxpayers, as are older state pensioners who earned sizeable Serps or S2P during their working lives, and they are among the many who will miss out on the ‘waiver’.
State pension age decision pending
Today’s triple lock boost will be welcomed by pensioners, but it comes with a warning,’ says Rachel Vahey, head of public policy at AJ Bell. ‘Change is on the horizon.’
‘Burnham’s decision to part ways with the triple lock is far more than an exercise in making the balance sheet add up.
‘Although keen to ensure the state pension holds its value with increases in workers’ earnings, moving to a smoothed average likely means pensioners in the future will be missing out on the full increases in earnings, especially in the years when wages spike.
‘But this isn’t the end of tough decisions on the state pension. Deciding when to bring forward the move in the state pension age from 67 to 68 is still hanging over this government.
‘If the government wants to bring forward this change to the late 2030s, it will need to make the call soon to give people at least 10 years’ notice in line with convention for increasing the state pension age.’
Some pensioners could be exempted from income tax
‘The April 2027 boost to the state pension means that some retirees on the full flat rate could incur an income tax liability in 2027-28 even if they have no other income,’ says Andrew King, pensions specialist at wealth management firm Evelyn Partners.
‘The new £13,036.40 annual payout would exceed the personal income tax allowance by just under £467, and at the basic rate of income tax that could mean just over £93 is owed to HMRC.’
‘That is slightly up in the air because the Government has hinted that those who receive the state pension alone will not be charged income tax on it.
‘We hope the Budget will deliver some confirmation or details of this policy. If it is confirmed, that could be viewed as unfair by those who do have a smaller state pension but additional private income and so have to pay the tax.’
Save harder to boost private pensions
‘The state pension is, and will remain, a firm foundation on which to build your retirement income,’ says Helen Morrissey, head of retirement analysis at Hargreaves Lansdown.
‘However, the reality is it is only going to cover the basics no matter how it is increased. If you want to maintain the lifestyle you enjoyed while working, it’s important to make the most of your pension.
‘Taking small steps, such as boosting contributions whenever you get a pay rise or promotion, can be really useful. If your employer will increase their contribution if you increase yours, then that can also really pay off long-term.’
