The new full State Pension is set to increase by £460 a year from April 2025 in line with average earnings figures, which reached 4% in May-July.
This would take the new full State Pension (for those who reached State Pension age after 2016) to £11,962 in the 2025/26 tax year, up from £11,502 in the current tax year. Someone on the full basic State Pension (for those who reached State Pension age before 2016) will see a lower increase, with their pension rising from £8,814 to £9,167 per year from next April.
The increase is down to the government’s ‘triple lock’ guarantee, which means pensions are guaranteed to rise by the highest of 2.5%, September’s inflation number, or May-July earnings numbers. Find out more in our article What is the pension triple lock? However, there is a chance that official earnings figures could be revised in a month, so the increase won’t be officially announced by Liz Kendall, the Work and Pensions Secretary, until around the time of the Budget.
Myron Jobson, senior personal finance analyst at interactive investor, said: “It is all but confirmed that the State Pension will rise in line with average earnings, as the headline inflation figure for September is not expected to come in higher.
“While the £460 increase in the State Pension may seem like a welcome boost on the surface, many pensioners won’t feel any richer thanks to the double whammy of inflation, which continues to erode the real value of any pension increment, and the loss of the £300 Winter Fuel Payment, which is now means-tested.”
You can read more about how the State Pension works in our guide How the State Pension works and about changes to the Winter Fuel Allowance in our article Winter Fuel Payment 2024: who is eligible, and how can I claim?
If you’re thinking about getting professional financial advice, you can find a local financial adviser on VouchedFor or Unbiased, or for more information check out our guide on How to find the right financial adviser for you.
Alternatively, if you’d like advice on your private pension, we’ve partnered with independent advice firm Fidelius to offer Rest Less members a free initial consultation with a qualified financial advisor.
Fidelius are rated 4.7 out of 5 from over 1,250 reviews on VouchedFor, the review site for financial advisors. With your free consultation, there’s no obligation, however if the adviser feels you’d benefit from paid financial advice, they’ll talk you through how that works and the charges involved.
Please note that Fidelius can discuss private pensions, but is not able to advise on the State Pension and defined benefit / final salary (e.g. NHS) pensions.
Retirement incomes remain under strain
Despite the increase in the State Pension next year, anyone who is solely reliant on this in retirement is likely to struggle to make ends meet, especially as many pensioners don’t receive the maximum amount.
Becky O’Connor, director of public affairs at PensionBee, said: “It’s important to recognise that many pensioners do not receive the full amount and so will not get this headline increase of £460 a year. It’s also vital to bear in mind that many pensioners are completely dependent on the State Pension and do not receive any other form of income – and can no longer work.
“Cuts to the Winter Fuel Allowance are likely to affect some of the poorest pensioners, who are on lower amounts of State Pension. This group of pensioners need all the support they can get.”
According to calculations by retirement specialists Just Group, even someone who does the full State Pension of £11,962 a year would still need an additional £5,238 income from pensions, savings and investments to reach the Joseph Rowntree Foundation Minimum Income Standard of living, which is £17,200 a year. This is the minimum amount that the charity considers is needed to pay for essentials such as food, clothing and shelter.
To purchase an annuity, or guaranteed income for life delivering £5,238 a year of income, a single person would need a pension pot equivalent to £72,250 by the time they reached State Pension Age at the age of 66.
Stephen Lowe, group communications director at Just Group, said: “The Joseph Rowntree Foundation’s Minimum Income Standards are a helpful guide to the income pensioners are likely to need to live in dignity during retirement.
“Even assuming pensioners are receiving the full State Pension – which we know many are not – they will still need to find thousands of pounds a year of extra income to bridge the gap to the Minimum Income Standard.
“It demonstrates the importance of building up additional sources of income throughout a working career, whether that is through the pension system, using property as a reservoir of wealth or accumulating additional savings and investments.
“The good news is that for many people the amounts needed to supplement the State Pension are achievable but it should be noted that this is only enough for ‘a dignified socially acceptable standard of living. Many people will have other ambitions and they should consider whether their current savings are on track to meet those expectations.”
If you are seeking ways to maximise your retirement income, you can find tips in our articles Five ways to turbocharge your pension in 2024, Six ways to make your pension work harder and How to boost your retirement income.
The State Pension and tax
The State Pension is taxable, but the amount of tax you’ll need to pay depends on how much other income you have and whether this pushes you over your £12,570 personal allowance. Your personal allowance is the amount of income you are allowed to receive each tax year without having to pay tax on it.
A pensioner receiving the full new State Pension next April will now only need an extra income of £607 a year before their personal allowance is used up in full.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said; “The increase will take the full state pension to just shy of £12,000 next year, closing in on the £12,570 personal allowance.
“Given that the freeze to this threshold is expected to remain in place until 2028, it raises the spectre of the full state pension alone taking pensioners over it and into the realms of paying income tax during the next few years. For those who have saved for the future, paying tax on income in retirement is nothing new, but the principle of paying tax on the state pension is still very unwelcome.
“If pensions are rising with price inflation at the point when the State Pension eventually breaches the personal allowance, once tax is taken into account, retirees who get just the State Pension will actually be worse off in real terms. Pensioners are already asking whether they should be in the frame for filling the gap in the public finances, and this isn’t going to quell their concerns.”
If you’re thinking about getting professional financial advice, you can find a local financial adviser on VouchedFor or Unbiased, or for more information check out our guide on How to find the right financial adviser for you.
Alternatively, if you’d like advice on your private pension, we’ve partnered with independent advice firm Fidelius to offer Rest Less members a free initial consultation with a qualified financial advisor.
Fidelius are rated 4.7 out of 5 from over 1,250 reviews on VouchedFor, the review site for financial advisors. With your free consultation, there’s no obligation, however if the adviser feels you’d benefit from paid financial advice, they’ll talk you through how that works and the charges involved.
Please note that Fidelius can discuss private pensions, but is not able to advise on the State Pension and defined benefit / final salary (e.g. NHS) pensions.
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