Pensioners across the country should expect their payments to increase soon (Image: Getty)
Around 12.7 million individuals over the State Pension age will learn how much their regular payments will increase in April, two weeks before Chancellor Rachel Reeves announces the annual uprating during the Autumn Budget in Parliament on October 30. The Labour Government has committed to maintaining the , and the final component of this policy is set to be released by the Office for National Statistics (ONS) on Wednesday, October 16.
The New and Basic State Pensions increase annually under the , in line with whichever is highest between the average annual earnings growth from May to July (4%), the Consumer Price Index (CPI) inflation rate for the year to September, or 2.5 per cent. Additional elements and deferred State Pensions rise each year with the September CPI figure.
The August CPI figure was 2.2 per cent, while earnings growth stood at 4.0 per cent. Pension experts are now suggesting that it’s highly unlikely the CPI will exceed the earnings growth rate, meaning the latter will be used to calculate the uprating for 2025/26.
Based on the latest earnings growth figure, those on the full New could see a weekly increase of £8.85, from £221.20 to £230.05. As payments are typically made every four weeks, this equates to an increase of £920.20.
This would result in annual payments rising by £460, from £11,502 to £11,962, over the 2025/25 financial year, reports .
Pensioners receiving the full Basic are set for a weekly pay rise of £6.80, taking their income from £169.50 up to £176.30 delivering an annual boost of £705.20 over every four-week span.
Individuals’ sums hinge on the National Insurance contributions made throughout their careers. A minimum of 10 qualifying years is required to qualify for any , while a full New normally demands roughly 35 years, although this number can be higher for those who have contracted out.
Standard Life’s Retirement Savings Director at Phoenix Group, Mike Ambery, offered his insights on the recent CPI figures’ impact on pensioners. “Unless an unexpected shock drives price rises significantly higher than forecast, we’re unlikely to see a situation where the inflation trigger rather than 4 per cent average earnings ends up determining the , however it’s worth noting that as inflation creeps further above the Bank of England’s 2 per cent target it will erode the real impact of next year’s boost for pensioners.”
To put it in perspective with the current rate hikes, he elaborated, “With price rises around the 2.2 per cent mark, the real boost for pensioners will be 1.8 per cent – with inflation at target, they would be 2 per cent better off.”
Ambery has raised concerns about the looming fiscal challenges: “This winter’s price rises are likely to be heavily driven by rising energy costs. Next year, like this year, there will no longer be a universal and so if energy prices follow the same pattern in 2025 they could further erode the boost.”
She also emphasised the potential hardship for pensioners: “Pensioners on lower incomes and most dependent on the for income are likely to feel the greatest impact of this – we would urge anyone of age and on a low income to check their eligibility for Pension Credit using the government’s online Pension Credit calculator.”
Forecasts indicate significant changes in payments according to the ONS figures with an assumed earnings growth figure of 4.0 per cent, potentially affecting millions of retirees:.
Full New calculations predict:.
– Weekly payment to rise to £230.05 from £221.20.
– Four-weekly payment increasing to £920.20 from £884.80.
– An annual total amount now £11,962, previously £11,502.
For the Full Basic :.
– Weekly rate predicted at £176.30, up from £169.50.
– Over four weeks, payments could reach £705.20 from £678.
– The annual sum might climb to £9,167, a significant rise from £6,814.
State Pension and Personal Tax Allowance
The Personal Allowance will remain frozen at £12,570 until 2028. Some 8.1m (64%) older people currently pay tax in retirement, largely due to additional income from workplace or private pensions on top of their .
Retirement experts at Spencer Churchill predict nearly 900,000 more people will exceed the Personal Allowance threshold of £12,570 over the current financial year.
It’s important to be aware that older people whose sole income this year is the will not pay tax, and anyone with additional income who does not pay HM Revenue and Customs () directly through earnings, will not receive a tax bill until June or July 2025, which must be paid by the end of January 2026.
This year, the full New stands at £11,502, leaving a margin of just £1,068 before pensioners exceed the personal tax threshold. Therefore, those with additional monthly income exceeding £89beyond their State Pensionmight face a tax bill the following year.
Receiving the complete amount of the Basic means pocketing £8,814 annually, which positions pensioners £3,756 below the personal tax thresholdan equivalent to an extra monthly income of £313.
Retirement specialist Adam Pope has raised concerns, saying: “Freezing income tax thresholds for pensioners is worrying and could really affect their financial situation. Almost two million pensioners are expected to be hit by this in the next four years, meaning many of them will have to pay more tax.”
Highlighting the specific struggle for those relying on the , he noted: “This is especially tough for those mainly living off the . With no change in the tax thresholds, they could find themselves owing more tax than they expected, making things hard if they don’t have much to begin with.”
Pope added his insights regarding future implications: “As the amount goes up, more pensioners could have to pay more tax, making life harder for those already struggling. Over 60 per cent of pensioners are paying income tax, up from about 50 per cent in 2010.”
Additionally, Pope remarked on the potential consequences to disposable income: “What’s more, keeping income tax thresholds the same could mean pensioners have less money to spend. By 2027/28, the average tax-paying pensioner could be £1,000 worse off which could really affect their living standards and financial safety.”