New analysis from Standard Life, part of Phoenix Group, indicates that 12.7 million State Pensioners will be up to £1,100 a year better off from April as a result of the Triple Lock. Under the UK Government policy, the New and Basic State Pensions increase each year in-line with whichever is the highest between average annual earnings growth from May to July (4.1%), Consumer Price Index (CPI) inflation rate in the year to September (1.7%), or 2.5 per cent.
It’s important to be aware that additional State Pension elements and deferred State Pensions rise each year with the September CPI figure (1.7%). However, Standard Life warns that as the full New State Pension nears £12,000 it means more people in retirement will pay tax due to the freeze on the Personal Allowance.
The Personal Allowance is the amount of income people can receive before paying tax and has been frozen at £12,570 since the 2021/22 financial year. Standard Life has calculated that in that year, the new full New State Pension was equivalent to 74 per cent of the allowance, today it is 95 per cent.
This means pensioners will need just £607.40 of additional income before they start paying income tax.
Dean Butler, Managing Director for Retail at Standard Life said: “Pensioners are set to see a healthy boost to their incomes next April as the State Pension nears £12,000 per year. Despite high inflation over the past few years, recently this has come back down and is now at 1.7 per cent, below the Bank of England’s target. So, the Triple Lock has led to a fairly significant boost above and beyond CPI.
“This will be hugely welcome news to pensioners who rely on the State Pension for a large portion of their retirement income, many of whom are among the most vulnerable people in the country. There are of course many well-off pensioners too so increases will undoubtedly reignite debate around the long-term affordability of the State Pension, and the sustainability of the Triple Lock.”
The Labour Government has pledged to honour the Triple Lock policy for the duration of its tenure in Parliament. However, the Personal Allowance will remain frozen at £12,570 until 2028, which means the annual increase is on track to push more pensioners over the tax threshold.
Dean explained: “It’s important pensioners are aware of the potential tax implications, with the personal allowance set to be frozen until 2028. The personal allowance has remained flat in recent years and will gradually be bringing more and more people into the tax system as a result – including pensioners with only very low incomes above the State Pension.”
However, he added that there are a few steps people with modest private savings whose annual income is likely to be around the Personal Allowance limit can take.
Dean said: “While 25 per cent of pension savings can be withdrawn tax free, the remainder can be taxed. For those incomes hovering around the Personal Allowance, it’s worth ensuring they’re not taking bigger lump sums on which they might pay tax if they can be avoided. If they do have any ISA savings these are not subject to income tax and could be a useful source of additional income.”
State Pension 2025/26
Under the earnings growth figure of 4.1 per cent, people on the full New State Pension will see payments rise by £9.10 per week from £221.20 to £230.30 and as the payment is typically made every four weeks this amounts to £921.20.
This will see annual payments rise by £473.60 from £11,502 to £11,975.60 over the 2025/26 financial year.
Similarly, someone on the full Basic State Pension will see weekly payments rise by £6.95 per week from £169.50 to £176.45, or £705.80 every four-week payment period.
Annual payments will rise by £361.40 from £8,814 to £9,175.40 over the 2025/26 financial year.
Chancellor Rachel Reeves will confirm the annual State Pension and benefits uprating during the Autumn Budget on October 30, 2024.