Don’t be misled by headline-grabbing 4.7% State Pension rise – majority still struggle on smaller old pension

Thanks to the Triple Lock the State Pension looks set to increase by 4.7% next spring – but NPC warns that the media headlines do not tell the whole story.

Because only a third of the UK’s 12.95 million retirees receive the ‘new’ state pension, which would give many more than £500 a year extra in April. However a staggering 8.7 million – including our oldest and most vulnerable – are on the old, pre-2016 state pension, so will see a much smaller rise.

Brian Sturtevant, Chair of the NPC Pensions and Income Working Party said:  "A reported 4.7% rise in the State Pension under the Triple Lock mechanism may sound generous on paper, yet millions of older people still face serious hardship. 

“A £500+ increase will grab the headlines, but the majority of pensioners do not receive the full new State Pension. Many are on the much lower basic State Pension, and do not receive the full amount, so the actual cash increase they see is far smaller than the figures being widely quoted.

“At the same time, inflation remains stubbornly high, energy bills are set to rise by 2% in October, and food prices continue to climb. Pensioners on a fixed income, many of whom rely solely on the state pension, are still being forced to make impossible choices between heating and eating. We need a serious conversation about how to protect the most vulnerable from falling further behind."

The government’s “triple lock” guarantees the state pension rises each year by the highest of three measures: 2.5%, inflation, or average earnings growth.  Data released by the Office for National Statistics (ONS) shows that total pay, including bonuses, rose by 4.7% in the three months to July. With inflation forecast at 4% for September, it is likely that the 4.7% wage growth figure will be used to set next year’s state pension rise for the third consecutive year.

Two-thirds of us - 8.57m – are on the older & lower state pension

This adjustment will see the new flat-rate state pension, available to those reaching pension age after April 2016, rise to £241.05 per week—a yearly total of £12,534.60, marking a £561.60 increase.  Pensioners on the old basic state pension, for those who qualified before April 2016, are projected to receive £184.75 weekly, or £9,607 per year, representing a rise of £431.60.

It should be pointed out that not all pensioners receive the full state pension, as their entitlement depends upon them paying sufficient National Insurance contributions.

There is also a catch for those receiving the new state pension increase next April - many will start paying income tax for the first time.  Currently, the personal tax allowance stands at £12,570, frozen until 2028. As the value of the state pension edges closer to this threshold, more pensioners will find themselves paying tax on their main source of income, very often because they also have a small occupational pension or receive interest on savings that take them over the limit.

The triple lock, first introduced in 2011 by the Conservative-Liberal Democrat coalition, was designed to protect pensioners’ incomes against rises in living costs and working-age earnings. Yet, its sustainability is increasingly debated. The government’s official forecaster recently projected that the policy’s cost could be three times higher than initially thought by the end of the decade.

*Of an estimated 12.95 million state pensioners in the UK in 2024/25, around two thirds (8.57 million pensioners) were claiming the pre -2016 State Pension, while 4.38 million were new State Pension claimants. (House of Commons Library).

ENDS