Pensioners are on course for a 3.9% state pension rise next April, after the final piece of the triple lock puzzle fell into place.
The increase will take the full new state pension above £13,000 a year for the first time and beyond the frozen personal tax allowance.
How the state pension rise was confirmed
Under the triple lock, the state pension increases each April by the highest of September CPI inflation, average earnings growth, or 2.5%.
The Office for National Statistics (ONS) said CPI inflation reached 3.5% in the year to September, up from 3.1% in August.
That is below the 3.9% wage growth figure already published, meaning earnings growth will set the pension uplift. The Chancellor is expected to formally confirm the increase at next week’s Budget.
What pensioners will receive
Current full basic state weekly pension rate: £184.90 to £192.10, about £9,989 annually.
New state weekly pension rate: £241.30 to £250.70, about £13,036 annually.
Someone receiving the full new state pension would gain around £489 a year – just shy of £500. The basic state pension, paid to many people who reached state pension age before April 2016, would rise by about £374 annually.
Not everyone receives the full amount: entitlement depends on a person’s National Insurance record, and some pensioners receive less than the headline rate.
The full new state pension will exceed the £12,570 personal allowance for the first time
The rise is a milestone because the full new state pension will exceed the £12,570 personal allowance for the first time. The allowance has been frozen, while the state pension is expected to reach about £13,036 next year.
The Government has said pensioners whose only income is the new state pension, or the old basic pension with no increments, will not pay income tax as a result. But the precise mechanics have yet to be set out, with further details expected in the Budget.
Pensioners with additional income, from a workplace or private pension, savings interest or work – may face a higher tax bill, because their state pension is added to their other taxable income.
Rachel Vahey, head of public policy at AJ Bell, said: “Pensioners are set to receive just shy of £500 extra in their state pension next year. The full new state pension is set to surge past £13,000 for the first time, leaving the frozen £12,570 personal allowance trailing in its wake.”
What happens to the triple lock
Prime Minister Andy Burnham has said Labour plans to adjust the triple lock from April 2030, partly to help fund a new National Care Service in England. The Government says it remains committed to the current triple lock for the rest of this Parliament.
From 2030, the state pension would still rise annually by at least CPI inflation or 2.5%, with a new earnings link intended to prevent it falling behind average wages over time. The Government says the change is designed to keep the pension’s value relative to earnings while making the system more sustainable.
What it means for retirement planning
Experts stress that even the full state pension is designed to cover essentials rather than fund an entire retirement lifestyle.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said boosting workplace pension contributions after a pay rise or promotion can make a meaningful long-term difference.
Catherine Foot, director of the Standard Life Centre for the Future of Retirement, said the reform needs to be considered alongside the future state pension age and work to improve retirement saving – particularly for Generation X, many of whom have less generous defined-benefit pension provision than earlier generations.
For now, pensioners will be watching the Budget closely for confirmation of the 3.9% rise and, crucially, for clarity on how the Government will stop those living solely on the state pension from being taxed.
