finance

State pension set to rise by £230 a year as inflation goes up to 0.5%


RETIREES look set to see their state pension boosted by £230 a year as latest inflation figures force the triple lock guarantee.

The 2.5% increase is expected to be confirmed as the consumer prices index (CPI) level of inflation for September reached 0.5%.

Pensioners look set to benefit from a 2.5% boost to their state pension

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Pensioners look set to benefit from a 2.5% boost to their state pensionCredit: PA:Press Association

The triple lock ensures the state pension will rise by at least 2.5% each year.

Its calculation is based on whichever is higher out of consumer prices index (CPI) inflation, earnings growth or 2.5%.

If the triple lock comes into force, the new state pension will rise by £4.40 a week to £179.60 in April next year – an increase of £228.80 over the year.

The old basic state pension will increase by £3.40 a week to £137.65 – giving pensioners an extra £176.80 over 12 months.

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The full new state pension is currently worth £175.20 per week, while the previous full basic state pension was £134.25 per week.

The government has yet to officially confirm the triple lock boost, following claims Chancellor Rishi Sunak is being urged to tweak the guarantee to help pay for the coronavirus crisis.

But ministers usually uses inflation in September, and average earnings in the three months to July, to determine how much pensions go up by in April the following year.

It expected rise comes as the 12-month CPI rate for September was today confirmed as 0.5% – up from the 0.2% in August.

Top tips to boost your pension pot

DON’T know where to start? Here are some tips from financial provider Aviva on how to get going.

  • Understand where you start: Before you consider your plans for tomorrow, you’ll need to understand where you stand today. Look into your current pension savings and research when you’ll be eligible for the state pension, and how much support you’ll receive.
  • Take advantage of your workplace pension: All employers are legally required to provide a workplace pension. If you save, your employer will usually have to contribute too.
  • Track down your pensions: If you’ve moved jobs a lot, this means you’ll have several pension pots. It can be hard to keep track of them all, but the government offers a free pension tracing service to help you.
  • Take advantage of online planning tools: Financial providers Aviva and Royal London have tools that give you an idea of what your retirement income will be based on how much you’re saving.
  • Find out if your workplace offers advice: Many employers offer sessions with financial advisers to help you plan for your future retirement.

Meanwhile, the pensions lifetime allowance is expected to rise by £5,800 – or 0.5%, the same as CPI figures – taking the amount someone can save in a pension tax-free over their lifetime from £1,073,100 to £1,078,900.

Experts were predicting CPI would come in at 0.4%, with the latest figure is still far off the government target of 2%.

Average earnings, meanwhile, were down 1% for the three months to July – meaning the triple lock guarantee is likely to come into force.

This would be the fourth time the 2.5% triple lock has kicked in since the policy was introduced in 2011.

It’s the minimum pensions will rise by each year, but it ensures the amount retirees get is never frozen, or in line with lower inflation or earnings figures.

Last year, the state pension went up by 3.9% as it was based on average earnings, while retirees saw a 5.2% increase, in line with CPI figures, in 2012.

The government has previously ruled out scrapping the triple lock following suggestions it should be dropped to help pay for the costs linked to dealing with the pandemic

The Sun has contacted the Department for Work and Pensions for clarification on when it expects to confirm pension rises for next year and we’ll update this article when we hear back.

Tom Selby, senior analyst at AJ Bell, said: “With inflation at 0.5% and average earnings in the three months to July negative, the 2.5% triple-lock underpin looks set to kick-in from April next year.

“This should increase the value of the ‘old’ state pension from £134.25 a week to £137.65 a week, while the ‘new’ state pension is set to rise from £175.20 a week to £179.60 a week.

“This might not seem a significant boost, but the value of the triple-lock has never been clearer.”

The expected rise comes as the pension age for men and women has increased to 66 on October 6, up from 65.

For some women, this will be six years after they were originally told they would be able to claim their retirement fund aged 60.

We’ve rounded up everything you need to know about when you can retire in the UK and how you can claim a state pension.

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