Retirees received a boost after Jeremy Hunt announced the state pension will rise by the expected 8.5 per cent next year.
It will increase by £902 a year from next April under the Government’s ‘triple lock’ pledge, taking it to £11,500 ahead of the next election.
However, the rise means that more than 500,000 pensioners will have to pay tax for the first time.
The triple lock promise, a key pillar of the Tory manifesto at the last election, guarantees that the state pension will rise by the highest of inflation, wage growth or 2.5 per cent every year.
There had been concerns that ministers would increase pensions by a lower amount next year by not including NHS and civil servant bonuses after projections that honouring the triple lock in full could cost £8billion. But ministers chose to keep pensioners, who are seen as key Tory voters, onside ahead of the general election.
The state pension will increase by £902 a year from next April under the Government’s ‘triple lock’ pledge, taking it to £11,500 ahead of the next election (Stock Image)
The triple lock promise, a key pillar of the Tory manifesto at the last election, guarantees that the state pension will rise by the highest of inflation, wage growth or 2.5 per cent every year (Stock Image)
Announcing the increase, Mr Hunt told MPs: ‘There have been reports we would uprate [the triple lock] by a lower amount to smooth out the effect of high public sector bonuses in July, but that would have been particularly difficult for 1million pensioners whose only income is from the state.
‘So instead, today we honour our commitment to the triple lock in full.’ He added: ‘This is one of the largest ever cash increases to the state pension, showing a Conservative Government will always back our pensioners.’
He said the triple lock had helped lift 250,000 older people out of poverty since it was introduced by David Cameron in 2011.
Retirees on the full new state pension – paid to those who reached pension age after 2016 – will receive a £17.35 a week boost, raising their weekly income from £203.85 to £221.20 from April. This amounts to £11,502 a year, up from its current £10,600.
However, the increase pushes millions closer to the upper limit of their personal allowance, the point at which you pay income tax.
The threshold has been frozen at £12,570 until 2028 in a stealth tax trap that means retirees will only be able to take an income of £1,068 a year on top of the state pension before income tax kicks in.
Autumn Statement from the Chancellor of the Exchequer Jeremy Hunt on November 22, 2023
Steve Webb, former pensions minister and now partner at consultancy LCP, has estimated that an 8.5 per cent rise would increase the number of tax-paying pensioners to 9.15million – catching a further 650,000 in the tax net.
More than 750,000 pensioners have already been forced into paying tax on their retirement income in the past tax year.
The number of tax-paying pensioners jumped from 7.73million to 8.5million on the back of this April’s state pension increase, figures from HM Revenue & Customs reveal.
Many people whose retirement income exceeds the allowance will not see the full state pension increase and will have to hand 20 per cent of it over to the taxman.
Basic rate taxpayers in this position will take home just £722 of the £902 increase, with HMRC clawing back £180 of the income in taxes.
Claire Trott, of financial adviser St James’s Place, said: ‘The increase in state pension will be eroded by tax and pensioners will only really benefit from an increase in the money they have in their pocket of 6.8 per cent.’
Next year’s increase will add around £7.65billion to the Treasury’s pension bill, triggering further debate over the sustainability of the triple lock mechanism.
Tom Selby, of stockbroker AJ Bell, said: ‘Given where the Conservatives find themselves in the polls and the fact older people hold huge sway at the ballot box, it is hardly surprising they opted to target fiscal restraint elsewhere.’
The rise is so welcome but problem is right now
Thabani Sithole said the Chancellor’s decision to stick to the triple lock with a 8.5 per cent state pension rise provided ‘a bit of hope’.
The 73-year-old who has recently downsized from a three-bed in West Norwood, London, to a two-bed apartment in nearby Brixton, says she is left in overdraft each month despite trying to reduce energy costs and make use of food banks.
So she feels the extra cash is still ‘not enough’ as her monthly expenditures are greater than the amount coming in. She currently receives £365 a month in state pension, topped up with £109 a week in pension credit, and also attendance allowance.
Mrs Sithole, who worked as a critical care nurse for several decades, was forced to retire just before Covid on health grounds.
She says that while the rise in state pension and other benefits will come into place next year, the ‘problem is in the now’ and she and many others still need help to get through winter.
Thabani Sithole says that while the rise in state pension and other benefits will come into place next year, the ‘problem is in the now’ and she and many others still need help to get through winter
She would not be able to manage if she didn’t live with her daughter, who contributes £750 a month to household costs.
Mrs Sithole said: ‘I’m actually wondering how much it’s going to help us. It is not enough for us who have worked hard all our lives.
‘It gives us a bit of hope but the increase will be in April. We’ve got to get through winter before that.
‘Some of us have worked so hard, I worked six days a week until I had to retire because of a knee operation. I’m not the only one, we need more help.’
