The new state pension, effective from April, is projected to rise by over £500 annually, according to recent wage data. This increase is guided by the “triple lock” policy, which adjusts the state pension based on the highest of three factors: 2.5%, inflation, or average earnings growth.
Recent data from the Office for National Statistics (ONS) indicated that total pay, including bonuses, increased by 4.7% in the three months leading to July. This figure is likely to be the basis for the upcoming annual increase. Introduced by the Coalition government in 2011, the triple lock aims to maintain the pension’s value in line with either cost of living or wage growth.
Currently, around 13 million individuals in the UK receive the state pension. Under the new calculations, the flat-rate state pension for those reaching retirement after April 2016 is expected to rise to £241.05 per week, amounting to £12,534.60 annually, an increase of £561.60. Conversely, the basic state pension for individuals who reached retirement age before April 2016 is projected to increase to £184.75 per week, totaling £9,607 per year, which is a rise of £431.60.
Experts, including Sir Steve Webb, a partner at LCP and former pensions minister, noted that the rising standard rate of the new state pension is nearing the frozen personal tax allowance, which is currently set at £12,570. As a result, individuals solely dependent on the new state pension may become taxpayers by April 2027. Nearly three-quarters of pensioners currently pay income tax and may increasingly fall under this classification due to the ongoing freeze in tax thresholds in combination with pension increases.
It should be noted that not all pensioners receive the full amount of the state pension, as eligibility is contingent upon years of National Insurance contributions. Additionally, many retirees have income sources beyond just the state pension, including workplace or private pensions. The state pension represents the second-largest item in the government budget following health spending.
The triple lock’s financial implications have been a topic of debate, and Chancellor Rachel Reeves has committed to maintaining it until the end of the current parliamentary session. However, recent forecasts suggest that the cost of the triple lock may surpass original projections by threefold by the decade’s end.
Source: https://www.bbc.com/news/articles/c62lnzdndkeo?at_medium=RSS&at_campaign=rss