The State Pension will rise in line with inflation from next April, after the Chancellor announced in his Autumn Statement that the ‘triple lock’ would be restored.
Under the triple lock guarantee, the State Pension must increase each year by either 2.5%, or inflation as measured by the Consumer Prices Index in September the preceding year, or by the average increase in wages across the UK. It was introduced over a decade ago to ensure that pensions would keep pace with rising living costs and incomes. However, following a sharp jump in wage growth after the pandemic, rather than rising in line with incomes, the government chose to suspend the triple lock pledge, instead increasing the State Pension by inflation, which in September 2021 stood at 3.1%.
There were fears that the triple lock would be broken again next April, given that the inflation figure this September reached 10.1%, but the Chancellor confirmed that it would indeed rise by this amount in April 2023.
Gary Smith, financial planning director at wealth manager Evelyn Partners, said: “The full state pension for those retiring after April 2016 will rise to £203.85 per week or £10,600 per year - taking it above the £10,000 benchmark for the first time.
“Even wealthier savers should not underestimate the value of the state pension, and therefore the importance of it keeping pace with inflation – for all demographics, including younger workers, as they will one day hopefully benefit from the current maintenance of state pension levels. “
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Pensioners were also promised a £300 payment to help them cover rising living costs. There was also good news for those claiming Pension Credit, which will also be uprated by 10.1% from April will boost the income of single pensioners to around £201 per week. Pension Credit claimants will be eligible for cost-of-living payments of £900. Most other means-tested benefits will also rise in line with inflation.
However, it’s worth noting that these changes won’t come into effect until next April, which means it will still be a very tough winter for most.
More pain for the ‘squeezed middle’
Whilst the Autumn Statement brought good news for those reliant on the State Pension, it was less positive for middle earners. Personal tax allowances were frozen for an extra two years, which will drag more people into the tax net and mean existing taxpayers will pay more than they currently are.
Steven Cameron, pensions director at Aegon, comments: “Freezing thresholds may be a ‘hidden’ way of raising more tax revenue, and less transparent than an increase in the rates of income tax. However, the irony is that for low and modest earners, such a freeze could lead to them paying more in income tax than an increase of say 1% in the basic rate.”
The Autumn Statement also brought bad news for investors with dividend and capital allowances being slashed, strengthening the case to invest in tax-efficient ISAs.
Michelle Cox, senior tax manager at the Nottingham office of UHY Hacker Young, said’ “The Capital Gains Tax (CGT) annual exemption will reduce to £6,000 in April 2023 and drop to £3,000 from April 2024, meaning anyone selling a capital asset in 2024 will increase their CGT liability by somewhere between £930 and £2,600. “
The dividend tax allowance will be halved to £1,000 from April 2023 and halved again to £500 from April 2024. UHY Hacker Young has calculated that this change will increase 2024 income tax bills for a shareholder paying tax at the higher rate by just over £500.
Susannah Streeter, senior investment and markets analyst said: “Investors who hold money in funds or shares outside a pension or an ISA will face a greater tax burden, which is a reminder of the value of ISAs in protecting investors from having to consider CGT or dividend tax.”
Households will face a further £500 increase in the Energy Price Guarantee from next April, which will place further strain on their finances. Gareth Kloet, Go.Compare’s energy spokesperson, said: “We welcome the news that the energy price guarantee will remain in place until April 2023 at the current rate of £,2500, as it will get us through the winter when energy consumption is traditionally at its highest.
“But, come April the energy price cap will rise to £3,000 – that’s an eye watering 20% increase - and so householders need to do all they can now to mitigate that increase, with measures such as good budgeting, increasing direct debits (if they can afford to) and making more energy efficiencies around the home.”