This week, millions of pensioners await crucial CPI figures to determine their State Pension increases for 2025/26, which may significantly impact their finances.
New State Pension Rates Set to Shock Millions of Pensioners This Week!
By Arezki AMIRI
Published on 14 October 2024 19:23
12.7 million individuals over State Pension age are anticipating news about their weekly payments for the 2025/26 financial year. The Office for National Statistics (ONS) will release the September Consumer Price Index (CPI) inflation rate this week, a figure that will determine these payments.
Chancellor Rachel Reeves is expected to make public the yearly increase at the Autumn Budget on October 30. Given the Labour Government's commitment to maintaining the Triple Lock, the CPI reported on October 16 will be crucial for calculating the increase.
Understanding the Triple Lock
The Triple Lock ensures that the New and Basic State Pensions increase annually based on the highest of three measures:
- Average annual earnings growth from May to July (currently at 4%).
- CPI inflation rate for the year ending in September.
- A fixed rate of 2.5%.
For those receiving additional State Pension elements or deferred State Pensions, the annual increase will align with the September CPI figure.
Current Figures and Predictions
As of August, the CPI stood at 2.2%, while earnings growth is at 4.0%. Experts believe that CPI will not exceed earnings growth, implying that the 4% will most likely be the decisive factor for the State Pension uprating in 2025/26.
Potential State Pension Increases:
- Full New State Pension:
- Current weekly payment: £221.20
- Projected weekly payment: £230.05 (an increase of £8.85)
- Four-weekly payment: £920.20
- Annual amount: £11,962 (up from £11,502)
- Full Basic State Pension:
- Current weekly payment: £169.50
- Projected weekly payment: £176.30 (an increase of £6.80)
- Four-weekly payment: £705.20
- Annual amount: £9,167 (up from £8,814)
Implications of CPI Increase
Mike Ambery, Retirement Savings Director at Standard Life, commented on the CPI figures, stating that unless an unforeseen spike in prices occurs, it is unlikely that inflation will surpass the earnings growth rate. He noted that with inflation around 2.2%, the real benefit for pensioners will be diminished.
Ambery also stated that increased energy bills this winter might have a greater impact on elderly, particularly those with lesser incomes. He encouraged those of State Pension age who rely largely on their State Pension to check their eligibility for Pension Credit using the government's online portal.
Tax Considerations for Pensioners
The Personal Allowance remains frozen at £12,570 until 2028. Currently, 8.1 million older individuals pay tax in retirement due to additional income from workplace or private pensions.
Retirement experts at Spencer Churchill predict that nearly 900,000 more people will exceed the Personal Allowance threshold in the current financial year. Notably, those whose only income is the State Pension will not incur taxes.
However, individuals receiving the full New State Pension should be cautious about any additional income exceeding £89 monthly, as this may trigger a tax bill. Similarly, those receiving the full Basic State Pension should monitor any extra income over £313 monthly.
Adam Pope, a retirement expert, expressed concerns about the freezing of income tax thresholds, indicating it could significantly affect pensioners. He warned that over 60% of pensioners now pay income tax, up from roughly 50% in 2010. By 2027/28, the average tax-paying pensioner could be £1,000 worse off, impacting their financial stability.