People on the full New State Pension could see payments rise by over £514 next year under the Triple Lock, as earnings growth of 4.1% (including bonuses) outpaces the current inflation rate of 2.6%. The increase under the earnings growth measure would see weekly payments rise to up to £251.20 for the New State Pension and £192.50 for those on the Basic State Pension.
Triple Lock mechanism
Under the Triple Lock, State Pensions increase each year in line with whichever is the highest of average annual earnings growth from May to July, Consumer Price Index (CPI) inflation in the year to September, or 2.5%. There are 13 million people of State Pension age in the UK, but the amount received depends on National Insurance contributions. To receive the full New State Pension, you need around 35 years’ worth, but this may differ if you were ‘contracted out’.
If September’s inflation figure – published in mid-October – is lower than the earnings growth measure, the full New State Pension will be worth £13,062 over the 2027/28 financial year. However, the projected uprating would also see the full New State Pension exceed the Personal Allowance limit of £12,570 by £492, meaning more pensioners would pay tax in retirement.
Projected payment amounts
The Triple Lock is currently on track to be determined by the earnings growth element of 4.1% (including bonuses). The CPI for September will be published on October 16 and is currently 2.6%. Chancellor John Healey will confirm the annual uprating at the Autumn Budget later this year.
An uprating of 4.1% on the current State Pension would see the following amounts:
- Full New State Pension: Weekly £251.20 (from £241.30); four-weekly £1,004.80 (from £965.20); annual £13,062.40 (from £12,547)
- Full Basic State Pension: Weekly £192.50 (from £184.90); four-weekly £770 (from £739.60); annual £10,010 (from £9,614)
Expert comment
Commenting on the latest earnings growth figures from the Office for National Statistics (ONS), Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “With inflation standing at 2.6 per cent, this suggests, barring a shock inflation spike over the next couple of months or collapse in average wage growth, that wages will be the element used.”
She added: “While an inflation-busting increase will be good news for pensioners, the fact remains that the State Pension on its own does little more than cover the essentials. If you want more from your retirement, then you need to make the most of your workplace and personal pensions.”
Ms Morrissey said auto-enrolment has helped more people save into a pension, but warned that minimum contributions may not be enough for many people to maintain their lifestyle in retirement. She added: “To prevent a nasty shock, it pays to consider what you want your retirement to look like and then you can calculate how much it might cost. A nice retirement means different things for different people – some may want to travel the world; others may want to stick closer to home but spend more time with family and friends.”
She advised: “Make use of online tools from your pension provider, such as online calculators. These can tell you how much you are on track to receive. If you aren’t quite where you want to be, you can also model the impact of increasing your contributions over time. Taking small steps, such as increasing your contributions every time you receive a pay rise, can make a huge difference. You can also make the most of employer contributions.”
Tax implications
Guidance on GOV.UK states: “You pay tax if your total annual income adds up to more than your Personal Allowance. Find out about your Personal Allowance and Income Tax rates. Your total income could include: the State Pension you get – Basic or New State Pension; Additional State Pension; a private pension (workplace or personal) – you can take some of this tax-free; earnings from employment or self-employment; any taxable benefits you get; any other income, such as money from investments, property or savings.”
To check if you have to pay tax on your pension, you will need to know if you have a State Pension or a private pension, how much State Pension and private pension income you will get this tax year (April 6 to April 5), and the amount of any other taxable income you’ll get this tax year (for example, from employment or state benefits). The tool cannot be used if you get any foreign income, Marriage Allowance, or Blind Person’s Allowance. Use the online tool at GOV.UK to check if you have to pay tax on your pension.
