State Pension likely to rise by £460 from April

12 September 2024

Written by Retirement Line

The full UK State Pension is likely to rise by £460 a year from April 2025, thanks to the ‘triple lock’ mechanism, according to reports. 

This increase is expected to be driven by wage growth, with figures soon to be confirmed by the government. Treasury estimates suggest the full new State Pension could reach just under £12,000 a year, following a £900 increase earlier this year.

According to the Office for National Statistics (ONS), UK wage growth rose by 4% in the three months leading up to July, setting the stage for next year’s increase under the triple lock. 

How much will the State Pension be worth in 2025?

The State Pension is a crucial income for many UK pensioners, paid every four weeks to those who have reached the qualifying age with sufficient National Insurance contributions or credits. 

Thanks to the triple lock, in April 2025, the full new State Pension is likely to rise to:

• £230.05 a week for the full, new flat-rate State Pension (for those who reached State Pension age after April 2016), equating to £11,963a year.

• £176.30 a week for the full, old basic State Pension (for those who reached State Pension age before April 2016). It equates to £9,168 per year.

This comes after the 8.5% rise in April 2024, which saw the full new State Pension increase to £221.20 per week, and the full old basic State Pension rise to £169.50 per week.

The final decision regarding the State Pension increase will be confirmed by Liz Kendall, the secretary of state for work and pensions, before October’s budget.

More than 12 million people in the UK currently receive the State Pension. However, the Guardian reports that data from last week reveals that only around half of people who got the State Pension last year were receiving the full weekly amount. Around 150,000 were getting less than £100 a week.

How does the triple lock work?

The triple lock ensures that the State Pension increases annually by the highest of three factors:

1. Inflation, based on the Consumer Prices Index (CPI) from the previous September.

2. Average wage growth across the UK, usually measured from May to June of the previous year.

3. A guaranteed minimum of 2.5%.

This system, introduced in 2010 by the Conservative-Liberal Democrat coalition, was designed to protect pensioners from rising living costs and ensure that their income grows in line with wages.

September's inflation figure plays a key role, as it determines whether inflation or wage growth will set the pension increase for the following April. 

Treasury estimates suggest that wage growth—currently at 4%—may determine the 2025 rise unless inflation in September is higher. This will be confirmed in October. 

The government’s commitment to the triple lock was recently reaffirmed by Chancellor Rachel Reeves, who said: “The basic State Pension is worth £900 more than it was a year ago and will go up again in April next year because of the triple lock, which we have committed to for the duration of this parliament.”

Winter fuel payments and pensioner poverty

The potential increase in State Pensions comes at a time of controversy over cuts to the £200-£300 winter fuel payment.

The government has introduced a means test for these payments, meaning only those on pension credit or other means-tested benefits will qualify. This decision has drawn criticism, with concerns that many pensioners may struggle to cover their heating costs this winter.

Rachel Vahey expressed concern: “Although the increase to the State Pension should help meet next year’s bills, it doesn’t help those who will be living close to the edge of their means this winter.”

Rising State Pension and frozen tax thresholds

The State Pension rise also comes amid concerns regarding the impact of frozen tax thresholds on pensioners’ income, with the possibility it could create tax liabilities for many.

Jon Greer, head of retirement policy at Quilter, said: “Some pensioners relying solely on the State Pension may soon be in the absurd position of needing to pay a portion of it back in income tax. Pensioners receiving the full new State Pension now only need an extra income of £607 a year before their personal allowance is used up in full.”

Greer emphasised the need for a balanced, long-term strategy, stating: “A consensus on the appropriate level of the State Pension and a fair mechanism for maintaining its value over time is essential to prevent annual increases from becoming political flashpoints.”

Andrew Tully, technical services director at Nucleus, also raised concerns about more pensioners facing income tax as the State Pension rises towards the £12,570 personal allowance threshold. “This brings the interaction of State Pensions, the triple lock, means-tested benefits, and personal tax allowances sharply into focus,” he warned.

Sources:

Full UK State Pension is likely to rise by £460 a year from April 2025: Rise in UK earnings makes £460 state pension boost likely. FT Adviser. Accessed 10 September 2024.

Triple lock ensures State Pension increases annually: What is the state pension triple lock and what is it worth? BBC.co.uk. Accessed 10 September 2024.

Final decision will be made before October’s budget: State pension to rise by over £400 next year. BBC.co.uk. Accessed 10 September 2024.

Only around half of people who got the State Pension last year were receiving the full weekly amount. UK state pension to rise by more than £400 a year, say reports. The Guardian. Accessed 10 September 2024.