State Pension Increase Given in One Hand Taken in the Other

Increases to the UK State Pension and other benefits for April 2025 are set based upon the previous September’s inflation rate i.e., the Consumer Prices Index (CPI) inflation rate for this month (due to be announced by the Office for National Statistics ONS) in October 2024.

The triple lock remains in place with increases at the higher of

• Wages inflation
• CPI inflation
• 2.5% pa.

Wages inflation currently sits at 4.5%pa and CPI for July (published in August) was 2.2%pa.  Therefore, it is widely expected that inflation will remain at or around 2.0-2.3%pa meaning the likely state pension increase will be around 4.5%.

Speculation has been in the press all week with an expected state pension increase from £221.20 per week (£11,502.40pa) by £400 pa to £231.15 per week (£12,020).  This is now getting close to the Personal Allowance tax free income amount of £12,570 that is currently frozen until 2028.  The new Labour government will need to take action soon given state pensions in 2026 will likely creep above the personal allowance and present a big headache for HMRC where state pensions (that are taxable income but paid gross with no deduction of tax) as all pensioners on a full state pension in 2026 could find themselves receiving a gross state pension above the personal allowance meaning they must file a seld assessment return and tax bill to pay.

Those pensioners on the old basic state pension regime (reached state pension age before April 2016) and additional (2^nd tier) state pensions of S2P (State Second Pension) and SERPS (State Earnings Related Pension) will likelty see their basic state pension increase to £9,000 pa + additional state pension (which could take many way over £12,570pa).

Comment

A £400 ‘new’ State Pension increase next year but the Winter Fuel payment withdrawn for all pensioners not receiving pension credit.  Net neutral this year for government but pensioners will feel the pinch as the fuel price cap increases shortly.

The big headache is when state pensions do exceed the personal allowance and the easiest way we can see to combat this is to reintroduce an Age Allowance for all drawing state pensions i.e., an additional perosnal allowance to match state pension increases.