State Pension to rise by 4.8% from April
A welcome boost could be on the way for millions of pensioners next April, with the State Pension expected to jump by 4.8%.
But the good news comes with a catch - the increase may nudge some retirees over the tax threshold, meaning even small amounts of extra income could trigger a tax bill for the first time.
The expected increase in the State Pension next year is thanks to what’s known as the ‘triple lock’. This guarantees that the State Pension rises each year by whichever is the highest of September’s inflation figure (which has just been announced), wage growth between May and July, or 2.5%.
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Adam Cole, retirement specialist at Quilter said: “The final piece of the triple lock puzzle has now been revealed, with the latest inflation data confirming that the state pension will rise by 4.8% next April in line with average earnings growth. September’s Consumer Prices Index inflation figure came in at 3.8%, meaning earnings growth once again determines the uprating.”
If you’re claiming the full new State Pension, this means you should see your pension rise from £230.25 to £241.30 a week with effect from next April - an increase of £574.60 a year to £12,547.60. Those on the basic state pension should see their weekly payment increase from £176.45 to £184.90, or £9,614.80 a year.
Pensioners who receive the full State Pension should be aware that the rise could see them paying more in income tax each year. Maike Currie, Personal Finance vice president at PensionBee said: “The full new State Pension will now be £12,548 a year, only £22 below the frozen personal allowance (£12,570) - the amount you can earn tax-free each year. While not every pensioner receives exactly this amount, many retired pensioners on the full new State Pension could find themselves paying income tax on it the following year.”
Many pensioners will already be paying tax on their retirement income if they also receive income from other sources such as private pensions, savings and investments which aren’t held in individual savings accounts, or part-time work. James Norton head of retirement and investments at Vanguard said: “With the State Pension now using more of your personal allowance, drawing excess income from private pensions could lead to unnecessary tax and faster depletion of your savings. Leaving surplus funds in your pension allows for continued tax-free growth and avoids triggering avoidable tax on savings interest.
“As a reminder you can typically withdraw up to 25% of your pension tax-free, and this doesn’t have to be all at once, this too can be done as and when you need the income.”
It’s worth noting that the State Pension increase will need to be confirmed by the Chancellor Rachel Reeves in the November Budget before we can be certain it will go ahead.
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Helen Morrissey, head of retirement analysis at Hargreaves Lansdown said: “These increases are not yet set in stone - we will need to wait for the Budget for confirmation. This will be another piece of data to be considered as part of the ongoing review into the State Pension age. Recent data shows the number of people living until their nineties – and even longer – has soared and the government needs to consider how to balance the costs of state pension with the burgeoning pensioner population.
“We won’t hear back from the review for some time, but we could see further increases to State Pension age put on the table. We will also see increased debate as to the long-term viability of the triple lock. The government had pledged to keep it in place for the remainder of this Parliament but longer term we could see changes on the horizon.”