Figures published this morning by ONS show that average earnings (including bonuses, in the three months to July) were 4.0% higher than the same period a year earlier. Under the triple lock formula, and barring an unexpected surge in inflation in the next few months, this increase will determine the rise in the state pension in April 2025.
The table below shows the current rate of the ‘old’ basic state pension, and the standard ‘new’ state pension, and what they will rise to next year. Note that:
- People on the old system who also have ‘additional’ state pension (SERPS) will see that part of their pension rise only in line with inflation (yet to be published but currently 2.2%);
- Not everyone on the new state pension gets exactly the standard rate; in particular, many workers who were in ‘contracted out’ occupational pension schemes may get less than the full rate; their occupational pensions will typically rise by no more than inflation;
| 2024/25(£ pw) | 2025/26(£ pw) | Change(£pw) | 2024/25(£ pa) | 2025/26(£ pa) | Change(£ pa) | |
| Old basic pension | £169.50 | £176.30 | +£6.80 | £8,814 | £9,167 | +£353 |
| New state pension | £221.20 | £230.05 | +£8.85 | £11,502 | £11,962 | +£460 |
In addition, most pensioners will pay tax of at least 20% on these increases. Around 12.9m people receive state pensions and of these around 1.1m are paid outside the UK, leaving around 11.8m UK pensioners. Of these, HMRC estimate that there are currently 8.5m pensioners paying income tax, or just under three quarters of all pensioners. This will mean that most recently retired pensioners receive an after-tax increase of £368 rather than £460.
With tax thresholds frozen in April 2025, this increase will also bring around 340,000 pensioners into tax for the first time.
Commenting, Steve Webb, partner at pension consultants LCP said: “Part of next April’s increase is simply to keep pace with rising prices. Based on the current inflation figure of 2.2%, the new state pension would need to rise by just over £250 simply for pensioners to stand still. Whilst an above-inflation increase of £460 will be welcomed, only the further £210 represents a real increase. And this is before allowing for the income tax which most pensioners will pay on their state pension rise. Those who lose £200 or £300 in Winter Fuel Payments will therefore still be worse off in real terms next April”.
