State pension increase of £460 in 2025?

Since the Labour government was swept to power in July 2024, pensioners have been under the spotlight. Most controversially, the government introduced plans to means test the Winter Fuel Payment. At the same time, Labour has committed to keeping the state pension ‘triple lock’. In this post, we look at what the state pension increase will be in 2025 – and what it means for you.

What is the state pension triple lock?

Since the Pensions Act 2007, the state pension’s yearly increase has been determined by a rule called the triple lock. This ensures the basic state pension will increase by the greatest of:

• The growth in national average earnings
• Inflation, determined by the growth in retail prices measured by the Consumer Price Index
• 2.5 per cent.

This rule has been used every year since 2007, except in 2022. In that year there was a double lock. The growth in national average earnings was disregarded because the government believed the earnings element was a statistical anomaly. This was due to the COVID-19 pandemic depressing the 2020 earnings figure, resulting in an exaggerated rise the following year.

By how much will the state pension increase in 2025?

When the government takes the growth in national earnings into account, it uses the figures for the three months to July. This year, total pay rose at a rate of 4%. This is much higher than inflation. As a result the triple lock should use the 4% figure to determine the 2025 state pension increase. That said, the Work and Pensions Secretary decides the final state pension increase nearer the time of the October Budget. The official earnings figures could be revised before then, giving a different figure.

How much pension will I get?

The amount you will get depends on whether you qualify for the new state pension or the old one.

If you reached state pension age after April 2016, you’ll get the new, flat-rate pension. The full pension for 2024/25 is £221.20 per week, or £11,541.90 per year. If the pension goes up 4% for 2025/26, that equates to an increase of £8.85 per week or £461.78 per year – and a total annual pension of £12,003.68.

If you reached state pension age before April 2016, you get the old state pension. The current full rate is £169.50 per week or £8,844.27 per year. If this goes up 4% in 2025/26, that gives you an increase of £6.78 per week or £353.77 for the year. That’s a total yearly pension of £9,198.04.

Tax implications

One issue for pensioners, particularly those who have other income, is that the state pension increase could push them into income tax. The current tax-free personal allowance is £12,570. That’s just £566.32 more than the predicted, full, new state pension for 2025/26.

Winter fuel payments

Although the state pension is set to increase next April, this won’t help pensioners who are set to lose their Winter Fuel Allowance. A Freedom of Information request has revealed that some 780,000 pensioners will lose their allowance because they aren’t expected to apply for benefits they are entitled to.

If you are in this position, it’s worth checking whether you are eligible for Pension Credit. If you are, this could reinstate your Winter Fuel Allowance. It could also lead to help with NHS costs or a lower council tax bill. You may also find it worthwhile using the MoneySavingExpert benefits calculator to check whether you’re eligible for other support.

What next?

If your state pension increase takes you into income tax – or takes you further into it – it may be worth getting help with your self-assessment tax returns. If you’d like to learn how we can help you, get in touch with one of our friendly accountants today.