Soaring living costs are putting retirement incomes under strain, with many people hoping that 2024 will see these pressures start to ease.
There are certainly some welcome changes ahead, with increases to the State Pension and Pension Credit, for example, but these may not be enough to meet eye-watering rises to energy and food bills in recent years, which are some of the major costs in retirement. Fortunately, though, inflation is expected to ease over the next year, with the Office for Budget Responsibility (OBR) predicting it’ll fall to 2% by the end of 2024.
However, Alice Guy, head of pensions and savings at interactive investor, said: “Some experts think inflation will prove more stubborn, meaning pension savers could need to save more to achieve the same standard of living in retirement. The good news is that, with wages rising faster than inflation, the cost-of-living crisis is showing signs of beginning to ease, hopefully making pension contributions slightly more affordable.”
Here, we look at what changes lie ahead for pensions over the next year, alongside other benefits you may be entitled to, and potential ways to boost your pension.
If you’re considering getting professional financial advice, Unbiased is offering Rest Less members a free pension review. It’s a chance to have a qualified independent financial advisor (IFA) take a look at your pension arrangements and give an unbiased assessment of your retirement savings.
The review is free and without obligation, but if the IFA feels you’d benefit from paid financial advice, they’ll go over how that works and the charges involved.
State Pension rise
The State Pension will rise by 8.5% in April 2024, in line with earnings growth. This is the second biggest percentage rise in the State Pension in the last 30 years, as it rose by 10.1% in April 2023.
The triple lock guarantee means the State Pension will rise by the highest of September’s inflation figure, earnings growth, or 2.5%. Find out more in our article What is the pension triple lock?
From April 2024, someone on a new full State Pension will see it increase from £203.85 a week this year to £221.20 a week, while the old basic state pension will rise by £13.30 per week or £691.60 per year, to £169.50 a week. Read more in our article How the State Pension works.
Jamie Jenkins, director of policy and communications at Royal London, said: “In committing to an 8.5% hike, the Chancellor has honoured the government’s pledge and offered reassurance to millions that they will be able to stay ahead of the inflation curve for the short-term at least.”
Taxation
In April 2024, the Capital Gains Tax (CGT) allowance will reduce to £3,000, down from £6,000 in the 2023/24 tax year (down from £12,300 in the 2022/23 tax year). Similarly, the amount of dividend income you can earn before paying tax is reducing to £500 from April 2024, down from £1,000 this year and £2,000 in 2022/23.
This could make holding your savings in a tax-efficient pension or ISA particularly important. Guy said: “With an investment portfolio of £50,000 yielding 4% dividend income, you could end up paying up to £500 dividend tax on shares held outside an ISA or SIPP, and a capital gain of £10,000 could leave you with a £1,400 tax bill, if you’re a higher rate taxpayer.
“Acting before the end of the tax year in April to make use of this year’s allowances could potentially save a big tax bill down the line.”
Pension Credit rise
Up to a million pensioners are failing to claim Pension Credit, which could provide a valuable income boost of as much as £3,000 a year. It’s vital that you claim this money if you’re eligible, as it could make a real difference if you’re struggling financiallly, and it could help you to qualify for other benefits too (see below).
Pension Credit is a means-tested benefit and can increase retirement income by up to £201.05 a week if you’re a single person, or £306.85 for couples, and may be higher in some situations, such as if you’re a carer for someone. Read more in our article Pension Credit explained.
Pension Credit will increase by 8.5% next year, in line with the triple lock. From April 2024, Pension Credit for a single person will rise from £201.05 to £218.15, while for a couple it will rise from £306.85 to £332.95.
Find out more about Pension Credit and eligibility requirements in our guide Pension Credit Explained. If you think you might be eligible to claim it, you can make a claim by phone using the Pension Credit claim line on 0800 99 1234. If you’d rather make a paper application, you can request one on the above number, or you can download and print a Pension Claim form here.
You can find out if you’re eligible for Pension Credit and how much you can get using the Gov.uk Pension Credit calculator.
Lifetime Allowance abolished
The pensions Lifetime Allowance will be abolished from 6 April 2024, and the tax charge for breaching the allowance hasn’t applied since April 2023. Originally, it was due to remain frozen at £1,073,100 until April 2026. Read more in our article What is the pension Lifetime Allowance and when is it being abolished?
This is good news for those who’ve saved into a pension over the course of several decades, and built up a substantial pot. They may have found they had retirement savings in excess of the Lifetime Allowance, particularly if they’ve been lucky enough to belong to a final salary (or defined benefit) pension scheme. This type of pension pays a guaranteed income at retirement, which is usually based on how many years you’ve belonged to the scheme and a proportion of your final year’s pay.
Guy said: “For people with big pension pots, the abolition of lifetime allowances last year was amazing news. But although lifetime allowance charges are gone, there will now be a £268,275 cap on the tax-free lump sum you can take from your pension. If you have existing lifetime allowance protections then check with your provider, as you may be able to keep a higher tax-free allowance in some circumstances.”
Extra benefits
If you are in receipt of certain pension benefits you may be entitled to additional money in 2024 to help you cover living costs.
- Cold weather payments: If you are receiving low-income benefits such as Pension Credit you should be entitled to automatic payments of £25 when your local temperature sits at an average of zero degrees celsius or below for at least seven consecutive days between 1 November and 31 March each year.
- Warm homes discount: You may be able to get £150 off your electricity bill as a one-off bill reduction, which is paid directly to your energy provider each year if you receive certain means-tested benefits such as the Guarantee Credit element of Pension Credit. Find out more about what help is available towards energy bills in our article Are you eligible for help with heating costs?
- Free TV licence: If you are a pensioner aged 74 or over and claiming Pension Credit you are entitled to receive a free TV licence, and a refund for any payments made while not being aware you were eligible, if that is the case.
Where to go for more help
It’s more important than ever to explore all the different ways you might be able to increase your retirement income. You can seek free guidance from the age of 50 and above from the Government’s Pension Wise service on your pension choices at retirement. You can call them on 0800 138 3944 to book a free appointment, or book one through their website.
If you’re considering getting professional financial advice, Unbiased is offering Rest Less members a free pension review. It’s a chance to have a qualified independent financial advisor (IFA) take a look at your pension arrangements and give an unbiased assessment of your retirement savings.
The review is free and without obligation, but if the IFA feels you’d benefit from paid financial advice, they’ll go over how that works and the charges involved.
If you’re lucky enough to have a defined benefit or final salary scheme, you’ll get a guaranteed income at retirement which can make it much easier to plan your budget. Check with your scheme’s administrator if you’re not sure when this income will start being paid. Find out more in our article Your options at retirement.
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