State pension set to rise by 4.1% next April – how much could you get?
The full new state pension should increase by £473 thanks to the triple lock, bringing it to just under £12,000 a year. But this will be offset by the removal of the winter fuel payment for millions of pensioners
Pensioners will enjoy another bumper boost to their state pension next April, with payouts set to rise by 4.1%.
The state pension increases in line with the triple lock, which means it goes up every April by whichever number is highest out of inflation, average UK earnings growth, or 2.5%.
The September measure of inflation is used, which came in at 1.7%, while the wage earnings growth in the three months to July was 4.1%.
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This means the state pension should rise by 4.1%. The full new state pension will increase from £221.20 a week (£11,502 a year) to £230.30 (£11,975).
Meanwhile, the "old" state pension - known as the basic state pension - will increase from £169.50 a week (£8,814 a year) to £176.45 (£9,175).
Dean Butler, managing director for retail direct at Standard Life, part of Phoenix Group, comments: “Inflation is back below the Bank of England’s 2% target and, unless the chancellor makes a shock triple lock change at the Budget, we now know the state pension will rise by an inflation-busting 4.1% next spring in line with average earnings."
However, the increase will be offset by the removal of the winter fuel payment for millions of pensioners, worth up to £300 this winter.
In July, the government announced that the benefit would be means-tested. To qualify, retirees need to claim Pension Credit.
Rachel Vahey, head of public policy at AJ Bell, notes: “Criticism of the decision to scrap the winter fuel payment for all pensioners except those that claim Pension Credit still lingers, and the government will hope this rise in Brits’ state pensions will publicly reinforce its commitment to the triple lock, as well as overshadowing the £200 or £300 most pensioners will lose this winter."
How much state pension will I get next year?
The full new state pension is currently worth £221.20 a week - or £11,502 a year. The new state pension is paid to men who were born after 1951 and women born after 1953.
If the annual payment rose by £473 in April, as is widely expected, it would increase to £11,975. However, not everyone receives the full amount of new state pension. Some people receive less.
Pre-2016 retirees will get a smaller boost of £361 a year - but only for those receiving the full basic state pension.
The amount you receive comes down to your age (in other words, do you get the new or basic state pension), and your number of years of recorded National Insurance contributions (NICs).
For the old pension you needed 30 years' of NICs, but for the new state pension you have to have 35 years of NICs to get the full amount, and at least 10 years to qualify for it at all.
You can get a state pension forecast from the government showing how much you could get.
Will I have to pay tax on my state pension?
If the state pension hits £11,975 next April, it will be just under the tax-free personal allowance (£12,570).
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, notes that this is "perilously close to the limits of the personal allowance". The allowance is expected to be frozen at £12,570 until 2028, meaning "there’s every chance we could see the state pension become taxable in the next few years", according to Morrissey.
However, due to complexities in the state pension system, some retirees already pay tax on their state pension income.
The pension consultancy LCP estimates that more than one in five of all pensioners have state pensions in excess of the personal allowance, with about 2.5 million pensioners paying tax on their state pension.
In addition, most pensioners receive other income on top of the state pension. They may have a workplace pension, private pension or self-invested personal pension (SIPP).
This means some pensioners are already paying a significant amount of income tax – and the burden is growing thanks to the effects of fiscal drag.
Tax thresholds have been frozen for over three years now, and aren’t expected to go up until 2028 at the earliest. As a result, the latest HMRC data suggests around 8.51 million pensioners will be liable for income tax in the 2024/25 tax year. That’s 660,000 more than in 2023/24.
Meanwhile, those who already pay income tax on their pension, but at the basic rate, could find themselves pushed into a higher tax band due to the growth of the state pension.
In the lead-up to the general election, the Conservatives promised to increase the personal allowance for pensioners as part of their “triple lock plus” election pledge. However, this was consigned to the policy dustbin when Labour won the general election.
Will we see any changes to the state pension in the Budget?
Labour has promised to conduct a large-scale pensions review as part of this parliament, but we don’t yet know if this will affect the state pension, or the tax rules that govern workplace and personal pensions. Further details could be revealed in Rachel Reeves’s first Budget on 30 October.
Labour has already chosen to mean-test the winter fuel payment, and there has been speculation it could also means-test the state pension in a bid to save money.
Morrissey notes that "the rumours will cause an enormous amount of worry, because the state pension forms a vital part of pensioner incomes".
She adds: "The situation is certainly challenging, as increasing longevity has contributed to a burgeoning bill. We’ve seen previous governments increase the state pension age in a bid to contain these costs, but there’s only so far these increases can go, given people can only work for so long."
Merryn Somerset Webb says means-testing would be incredibly complicated, and believes it's unlikely to happen. Instead, changing the triple lock or raising the state pension age may be more likely.
We look at what other pension changes could be on the cards:
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