The state pension is expected to increase by almost £500 a year from April, but some retirees could be liable for income tax for the first time. The rise is based on the triple lock policy, which guarantees an annual increase in line with the highest of average wage growth, consumer price inflation, or 2.5 per cent.
The Office for National Statistics confirmed this week that total pay including bonuses for the three months to July was 3.9 per cent and will not be adjusted. The September inflation figure is due to be published later today (Wednesday, October 21). Unless inflation rises substantially from its current rate of 3.1 per cent, average wage growth is likely to be used to calculate the increase.
How much will the state pension rise?
Retirees receiving the full new state pension could see their weekly payments increase by £9.40, from £241.30 to £250.70. This would bring the annual amount to £13,036.40, which is £488.80 more than the current rate of £12,547.60.
While many will welcome the rise, millions of retirees may have to pay tax on their state pension for the first time. An income of £13,036.40 per year is £466.40 above the £12,570 threshold at which income tax becomes payable.
Tax exemption remains unconfirmed
In last year's Budget, former chancellor Rachel Reeves said that pensioners whose sole income is the state pension will not have to pay tax, but the Government has not yet confirmed how this would work. It has been estimated that just one in 16 pensioners will benefit from the exemption, The Sun reports.
Some pensioners will also receive an inflation-linked increase on their additional state pension payments, which top up the basic state pension for those who made extra National Insurance contributions.
