State Pension to Increase by 4.1% in April, Millions to Benefit
The Department for Work and Pensions (DWP) has announced a significant increase in state pension payments starting from April this year, with payments set to rise by 4.1% from the current 2022/23 financial year. This increase is expected to benefit millions of state pensioners across the country. The state pension undergoes an annual rise each year as part of the triple lock promise, which ensures that the pension increases by either inflation (based on the previous September’s figure), wage growth (average increase between May and July), or by 2.5% – whichever is the highest.
Last year, the Chancellor confirmed that state pension payments will be increased by wage growth, which stood at 4.1%, in April this year. The exact rise in state pension payments will vary depending on the type of pension one receives. There are two categories of state pension based on birth date – the new state pension for men born on or after April 6, 1951, and women born on or after April 6, 1953, and the older basic state pension for those born before these dates.
Currently, the new state pension is valued at £221.20 per week or £11,502 annually, which will increase to £230.30 weekly or £11,975 annually from April. On the other hand, the older basic state pension, currently worth £169.50 per week or £8,814 annually, will rise to £176.45 weekly or £9,175 annually. Your specific state pension amount is based on your National Insurance record. For the new state pension, most individuals need 35 qualifying years on their National Insurance record to receive the full amount, with at least ten years required to receive any pension at all.
Rachel Vahey, the head of public policy at AJ Bell, has raised concerns about potential tax implications for pensioners as the full new state pension approaches the current £12,570 tax-free personal allowance. She expressed worries that the state pension amount may surpass the frozen personal allowance in the next few years due to frozen tax thresholds. This impending situation may force the government to address how much the state pension should offer, at what age, and how to sustainably increase payments annually.
Apart from pension increases, individuals also face a deadline to purchase missing National Insurance years to enhance their state pensions. Currently, individuals can buy back missing National Insurance years dating back to 2006, but after April 5, only the last six tax years will be available for purchase. This change poses a risk for those with incomplete records, as it may prevent them from receiving a full new state pension in the future.
These developments have sparked discussions about the sustainability and adequacy of state pension payments and tax implications for pensioners. As the government works towards addressing these challenges, pensioners are encouraged to review their National Insurance records and explore options to maximise their state pension entitlements. The forthcoming increase in state pension payments reflects the government’s commitment to supporting retirees and ensuring a secure financial future for pensioners across the UK.