Pensioners might get hundreds of more pounds in their pensions from April.
State pensions are payments made every four weeks by the government – how much people get is tied to their earnings, among other factors.
It’s not a fixed sum though. The government’s ‘triple lock’ policy ensures that state retirement income rises every year by the highest of earnings growth, inflation or 2.5%.
We don’t have the latest inflation figures yet, so today’s new wage growth figures can give us an idea of what the next pension increase could look like.
has spoken to experts about what today’s news means for pensioners as well as those who haven’t hit retirement age just yet.
How much is the state pension now? And how much might it be going up by?
There are two different types of state pensions. The new state pension and old basic state pension – you get the former if you turned 66 after April 2016.
Right now, the full, flat-rate state pension is £221.20, about £11,502 a year.
The full, old basic state pension stands at £169.50 a week, so £8,814 a year.
According to the Office for National Statistics, average weekly earnings rose by 4% in the three months to July. These three months are what politicians used to help them decide the pension increase.
As much as this is the lowest increase in nearly four years, pensioners who reached the state pension age will see their pots go up by £460.
Breaking it down, that means the new state pension is going up to £230.05, or £11,962 from next year.
While the old pension plan will go up to £176.30 a week. That will take it to £9,167.60 a year, a rise of £353.60.
Inflation data for September hasn’t been released yet but was 2.2% in July.
At the end of the day, though, how much state pensions will actually go up is decided by Work and Pensions Secretary Liz Kendall.
She’ll reveal the final figure around the time of the Autumn Statement, the first budget of the new Labour government.
Is it a good thing?
It’s a mixed bag, Clare West, a finance editor at Investing Insiders, tells Metro.co.uk.
‘The news of a potential £400 rise in pensions is, of course, welcome to many pensioners, especially in times of financial strain,’ she explains.
‘However, when you consider current inflation rates and the ongoing cost of living crisis, this increase may not stretch as far as we’d like.
‘Rising energy bills, food costs, and other essentials are biting into people’s incomes more severely, so while £400 is a step in the right direction, it’s worth asking if it truly reflects the reality of what pensioners need today.’
How about the ‘triple lock’?
It’s very good, stresses Clare. ‘Undoubtedly’ so. ‘It has ensured their buying power hasn’t catastrophically decreased while prices have been rising,’ she says.
‘It has also assured retirees a certain level of peace of mind, although there’s no doubt that many pensioners are still struggling.’
Not everyone is a fan of it, however. ‘Among those not yet of retirement age, the triple lock is more controversial as it can be seen as financially protecting one group in society at the expense of others who you may perceive to be equally in need of protection. It’s no wonder it’s become a political hot potato,’ she says.
‘The worst-case scenario for pensioners would be to have just a single lock, linked to either earnings or inflation, but not both. If this happened, then your spending power as a pensioner would be very likely to be impacted.’
How do I know if I’m eligible for a state pension?
Whether you can get the state pension depends on your age, says Clare.
‘For people reaching state pension age now, it will be 66 for both women and men, with a phased increase to 67, then 68, for those born after 1960. There are likely to be further rises in the future.’
‘The decision about whether you’re eligible to receive the State Pension is usually based on your National Insurance record,’ she adds.
‘You’ll need at least ten qualifying years to receive the new State Pension (35 years to receive the full amount). A qualifying year is when you either work and make National Insurance contributions, receive any form of National Insurance credit (for example because you are a parent of small children, a carer, or unable to work), or pay voluntary contributions.’
Antonia Medlicott, the CEO of Investing Insiders, says that if you haven’t clocked this many qualifying years ‘you don’t need to panic’.
You’ll still get cheques from the government, though a smaller amount, ‘with just 10 qualifying years’.
‘To check if you are eligible, head to the GOV.UK website and navigate to the “Check your State Pension” page. It’s free and secure and should provide you with a full breakdown of what you will receive and when,’ she adds.
You might also qualify for an Additional State Pension, which is an extra pot for those not on the new state pension.
When do I get my state pension?
Once you turn 66. But depending on how old you are, this might be different for you soon.
The UK pension age of 66 is set to rise to 67 between May 2026 and March 2028. From 2044, it should rise to 68.
Some experts say it should be even higher as Britain has an ageing population. Anyone born after April 1970 may have to work until they are 71 before they can dip into the pension pot, the International Longevity Centre has suggested.
The state pension system relies on there being a fair few working-age people supporting the retirement of the elderly.
At the moment, according to the centre, it’s about five workers per retiree when the pension age is 65. If it stays this way until 2050, there will be just one worker per retiree.
‘However, it’s crucial to consider the bigger picture,’ adds Clare.
‘Many people in physically demanding jobs, or those with health issues, may struggle to work longer, and with burnout a real issue currently, a blanket increase might affect lower-income workers who may not have had the same opportunities to build up savings or private pensions as higher earners.’
Is state pension taxable?
State Pension income is taxable but is typically paid without tax being deducted. It will, however, eat up some of your tax-free personal allowance.
Right now, your personal allowance – the maximum amount of money you can receive without paying a penny in income tax – is £12,570.
The full new state pension right now is £11,502, meaning you’d have £1,248 of your personal allowance left.
Retirees don’t have to pay any National Insurance, with the amount of tax being paid depending on how much your state pension is as well as any rental incomes, other pension pots, bank interest or money from investments.
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