The state pension is now expected to rise by £460 next April following a 4% increase in UK average earnings in the three months to July, as reported by the Office for National Statistics (ONS).
This uplift will come under the government’s ‘triple lock’ system, which guarantees the state pension increases by the rate of inflation, average earnings, or 2.5% – whichever is higher.
The ‘new’ state pension is set to increase from £221.20 to £230.05 per week, and the ‘old’ state pension from £169.50 to £176.30 per week.
Rachel Vahey, Head of Public Policy at AJ Bell, suggests that sticking to the triple lock may help the government regain favour with pensioners, following recent criticism over plans to make the winter fuel payment a means-tested benefit.
Vahey said: “The government is coming under more intense pressure to ‘U-turn’ on its controversial decision to axe the winter fuel payment for all pensioners, except those who claim pension credit.
“And although the increase to the state pension should help meet next year’s bills, it doesn’t help those who will be living close to the edge of their means this winter.”
Indeed, the rise in state pensions looks set to be offset for some pensioners by the loss of the winter fuel payment, which usually provides around £200-£300.
Additionally, only the headline state pension will rise by the triple lock, while other elements like SERPS and S2P will increase by a lower CPI figure. This could also push more pensioners into paying income tax as the state pension approaches the frozen personal allowance of £12,570.
In summary, while the pension increase will provide some relief, it brings additional concerns regarding taxation and adequacy of benefits, as the broader pension system faces significant scrutiny in the government’s upcoming review.
Source: Khan, Alina. FT Adviser. September 2024. https://www.ftadviser.com/state-pension/2024/09/10/rise-in-uk-earnings-makes-460-state-pension-boost-likely/.