State pensioners aged under 77 are set to receive an extra £488.80 per year under Prime Minister Andy Burnham, as the next triple lock figures have been confirmed ahead of the Budget on October 28.
New state pensioners who reached state pension age during or after April 2016, meaning they would now be no older than 77, are set for a larger triple lock increase than older pensioners because their weekly payments are higher. The new state pensioners are not entitled to some defunct schemes such as Second State Pension.
Triple lock increase confirmed
Burnham has already confirmed he will stand by the triple lock for the rest of this Parliament, despite plans to axe it from 2030. The triple lock is the mechanism that uprates state pension payments annually by one of three metrics: inflation, wage growth, or a flat 2.5%, whichever is highest.
The Office for National Statistics (ONS) said on Wednesday that the rate of Consumer Prices Index (CPI) inflation was 3.5% in September, accelerating from 3.1% in August. This does not beat the 3.9% wage growth figure that had already been published.
Someone on the full new state pension is on course to receive £250.70 per week from next April, up from £241.30 per week currently, which works out at £1,086 per month in state pension payments from the DWP. The new state pension was introduced in 2016 and applies to all men born after April 5, 1951 and women born after April 5, 1953.
Basic pension and tax implications
Someone on a full basic state pension would receive £192.10 per week, increasing from £184.90, reaching around £9,989 per year. Many people do not receive the full state pension.
With the personal tax allowance frozen at £12,570, some pensioners are heading towards being caught within the tax net, with the annual new state pension poised to be pushed up to around £13,036 next year.
Expert advice and future plans
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: "The state pension is, and will remain, a firm foundation on which to build your retirement income.
"However, the reality is it is only going to cover the basics no matter how it is increased. If you want to maintain the lifestyle you enjoyed while working, it's important to make the most of your pension.
"Taking small steps, such as boosting contributions whenever you get a pay rise or promotion, can be really useful. If your employer will increase their contribution if you increase yours, then that can also really pay off long-term."
Prime Minister Andy Burnham has previously said that from April 2030, Labour plans to adjust the triple lock, which is used to increase state pensions each April. The state pension overhaul would help to fund a new National Care Service in England.
Under the plans, the state pension would continue to rise every year at least by CPI inflation or 2.5%. The door would still be left open to it rising by more than this if needed in some years, so that the state pension holds its value relative to average worker earnings. State pensions are already expected to equate to around 30% of average earnings by the end of the decade.
