Earlier this week, the Office for National Statistics (ONS) revealed that average regular earnings growth, including bonuses, is currently at 4.5 per cent. This figure is especially important for the 12.7 million State Pensioners in Great Britain, as it’s predicted to be the deciding factor in how much pensions increase next year under the Triple Lock policy.
The Triple Lock ensures that the New and Basic State Pensions rise each year by the highest of three figures: average annual earnings growth from May to July, the Consumer Price Index (CPI) in the year to September, or 2.5 per cent. With the CPI currently sitting at 2.2 per cent, the full New State Pension could jump from £221.20 to £231.15 per week in April, meaning pensioners would receive £924.60 every four weeks.
Similarly, the full Basic State Pension could increase from £169.50 to £177.15, or £708.60 every four weeks. However, it’s important to remember that the earnings growth figure used for the Triple Lock is specifically for the period between May to July, and this data won’t be released by the ONS until September.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, warned that while earnings growth remains “robust” and is “highly-likely” to determine how much State Pensions increase in 2025, it could also mean that more pensioners end up paying tax, including those who rely solely on the State Pension, reports the Daily Record.
The Personal Allowance has remained at £12,570 since 2021 and will continue until at least 2028. Meanwhile, the full New State Pension equates to £221.20 per week in the financial year 2024/25totaling £11,502placing pensioners just £1,068 under the tax-free threshold.
Any additional income over £89 a month could thus incur taxes.
With a potential 4.5% increase under the Triple Lock, the annual New State Pension may rise to £12,019, only £551 below the Personal Allowance. The Basic State Pension recipients currently at £169.50 weeklyor £8,814 annuallywould see their income rise to £9,211, giving them a larger buffer before reaching the tax threshold.
Ms Morrissey highlights: “The frozen tax thresholds mean that the full New State Pension is creeping ever closer to tax paying territory and a similar rise next year could see it surpass it. With these freezes in place until 2028, there’s every chance we could see pensioners solely reliant on the State Pension finding part of it is making its way to the taxman.”
She further addresses concerns over economic inactivity: “In terms of the working population, economic inactivity due to long-term sickness remains a huge concern. This spans all age groups but the majority of those affected are in the 50-64 age group.”
“Being unable to work during this period can have catastrophic effects on people’s ability to prepare for a decent retirement, as well as managing day to day. The latest data from the Hargreaves Lansdown Savings and Resilience Barometer shows only 38 per cent of households are currently on track for a moderate retirement income so there is already a mountain to climb.”
“How to deal with the impact of long-term illness on the workforce will be a major challenge facing the new Labour Government.”
Chancellor Rachel Reeves is expected to reveal the State Pension uprating during the Autumn Statement on October 30, 2024.
