The state pension is under increasing pressure as payments could soon reach £13,000 a year. Payments are increasing 4.1% in April and with inflation predicted to stay above the Bank of England’s 2% target, experts are pointing that next year’s boost could also be a sizeable sum.
Personal finance expert Amy Knight, from NerdWallet UK, said the financial burden of the state pension is already a major concern. She explained: “Funding the state pension is a huge cost for the Government, so it’s bound to come under scrutiny.
“Around a quarter of all spending goes on social security, including the state pension and working-age benefits such as Universal Credit. However, the three main political parties have all pledged to maintain the triple lock, with some analysts predicting the state pension could rise to £13,000 per year if it’s maintained past the next General Election.”
From April this year, payments will rise by 4.1%, taking the full new state pension from £221.20 a week to £230.25 a week, while the full basic amount will increase from £169.50 a week to £176.45 a week.
Ms Knight said that state pensioners could get a further 3.7% increase in their payments next year, potentially boosting the full new state pension by £442 annually, if the inflation metric is triggered.
She explained: “The Bank of England’s latest forecast suggests the Consumer Price Index (CPI) could hit 3.7% later this year, pushing up the price of essential goods and services. If the full new state pension rose by 3.7% next year, this would equate to an increase of around £8.50 per week. For those on the basic state pension, the increase would only be around £6.50 per week.”
A 3.7% uplift would mean the full new state pension increasing from £230.25 a week to £238.75 a week, or £12,415 a year, marking an annual rise of £442. The full basic state pension would climb from £176.45 a week to £183 a week, totalling £9,516 annually, an increase of £340.60 a year.
However, even if inflation is at these levels when the 2026 increase is calculated, the actual rise could be higher if average earnings growth exceeds inflation. Ms Knight looked at some of the factor that could determine the two metrics for next year’s pay increase.
She explained: “The tax hikes that will kick in for businesses from April will make it harder for employers to offer generous salaries or dish out pay rises. If wage growth cools off and inflation tracks sharply upwards as expected, September’s CPI figure could exceed the increase in average earnings, making it the determining factor for setting the state pension for 2026.”
However, she added that if the Bank of England manages its 2% inflation target over the coming years, it could be the average earnings measure that decides the state pension uprating.
Both Labour and the Conservative Party have made commitments regarding the triple lock on pensions. Labour has vowed to uphold the triple lock for the duration of this Parliament, whereas the Conservatives, in their last General Election campaign, pledged a ‘triple lock plus’ – ensuring that the personal allowance for pensioners would also rise in line with the triple lock, effectively shielding the state pension from income tax.
With the increases in April this year, the full new state pension will reach £11,973 annually, coming perilously close to the £12,570 personal allowance threshold after which your earnings become subject to income tax. Another growing issue for the affordability of the state pension the UK’s aging population.
This means there is a lower ratio of workers contributing through National Insurance to support state pension payments. Ms Knight urges individuals to invest in their personal pensions where possible, despite the pressures on household finances.
She said: “It’s hard to prioritise saving into a personal pension for the future when you’re struggling to pay the bills or put food on the table today. However, for those who can afford to make provision for their retirement, saving into a pension is worthwhile at any age, as any money you put away will benefit from a government top-up of 20% for basic rate taxpayers.”
