The new state pension is expected to rise by around £11, bringing it to £241 starting next April, thanks to the triple lock system.
However, the figures on inflation—specifically that potential 4.7% increase, translating to an extra £560 per year—need official confirmation. This situation may reignite discussions about the sustainability of the Triple Lock and stir some questions surrounding the standard tax-free personal allowance, currently set at £12,570.
What is Triple Lock?
In the UK, state pensions see an increase each April based on an approach called the triple lock.
This system, introduced by the previous government in 2011, ensures that both basic and new state pensions grow according to the highest of three measures.
How many people receive a state pension?
According to the latest data from Work Pension, there are approximately 13.1 million people receiving state pensions in the UK.
To qualify, men must be born before April 6, 1951, and women before April 6, 1953. Those born after these dates are receiving the new state pension.
The full basic state pension currently stands at £176.45 per week, while the entire new state pension is set at £230.25 weekly.
The government has indicated that direct comparisons between the two payments aren’t straightforward. In the older scheme, individuals could receive extra payments based on their national insurance (NI) contributions. The full NI contributions allowed them to qualify for what’s known as the “additional state pension,” also referred to as the State Earnings-Related Pension Scheme (SERPS) or the State Second Pension. This could translate to over £200 a week on top of the basic pension.
What will the rise be from next April?
While not absolutely confirmed, there’s a general expectation of what’s to unfold.
Recent figures from the National Bureau of Statistics indicated an annual growth rate of 4.7% from May to July this year. As often happens with these kinds of data, there might be minor adjustments next month.
The inflation figures for September are due out next month, but they probably won’t surpass the 4.7% seen previously. In July, it was at 3.8%, and August’s numbers are expected to stay the same based on Wednesday’s release.
If the projected 4.7% increase holds, the basic full state pension will reach £184.75 weekly, or £9,607 annually, while the entire new state pension will rise to £241.05 per week, equating to £12,534.60 yearly.
The government plans to decide on the pension increments before the November 26th budget.
Is Triple Lock popular?
Recently, there’s been significant debate surrounding the fairness and affordability of the Triple Lock system.
Some critics argue it feels unjust, as many seniors seem to enjoy a better quality of life compared to younger individuals. They question whether it’s fair for younger generations to support older people’s income to such an extent.
Several organizations, including the Institute of Fiscal Studies, have suggested that the Triple Lock might not be sustainable in the long term, complicating government budgeting due to unpredictable elements.
The Office for Budget Responsibility noted back in July that the Triple Lock could end up costing around three times more than initially estimated, indicating potential financial troubles down the line.
Advocates for the Triple Lock argue that it’s crucial for maintaining the value of pensions, especially for future retirees, many of whom lack access to generous workplace schemes and have inadequate retirement savings.
Could the triple lock be abandoned?
The Work and Pension Secretary reaffirmed the government’s commitment to the Triple Lock on Tuesday, echoing similar promises from other ministers.
A policy director at Broadstone reflected on the likelihood of renewed discussions about the Triple Lock’s future, suggesting that the debate is now increasingly about “triple-lock or nothing” when it comes to pension increases.
He mentioned that people generally view it as reasonable for state pensions to rise, considering the government’s repeated commitments throughout this legislative term.
Furthermore, the conversation should center on whether those increases should be tied to revenue growth or inflation, he suggested, highlighting its importance.
Steve Webb, a former pension minister, noted that the new state pension’s standard annual tax rate could lead more pensioners to become taxable if they have no other source of income starting April 2027.
It’s worth mentioning that nearly three-quarters of pensioners already pay income tax, and the ongoing freeze on tax thresholds, combined with rising pensions, is likely to pull even more retirees into the tax net.
