What the April 2024 State Pension increase means

State Pension now worth £221.20 a week

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Thanks to the Triple Lock, the State Pension has increased by 8.5%. It’s great news for pensioners across the country – but some could be faced with a tax bill for the first time in years.

The tax-free Personal Allowance – the point at which you start paying tax on your income – has been kept the same. So does that mean you will be paying income tax where previously you remained below the threshold?

What is the new State Pension level?

The State Pension is paid every four weeks to those who are eligible, based on a person’s age and how many qualifying years of National Insurance contributions they have paid.

Since 8 April, the UK State Pension now pays:

• £221.20 a week, or £11,502 a year for the full, new State Pension (for those who reached State Pension age after April 2016).
• £169.50 a week, or £8,814 a year for the full, basic State Pension (for those who reached State Pension age before April 2016)

You need the full 35 years on your national insurance (NI) record – made up of either NI contributions or credits – to receive the full new State Pension amount above. If you have 10–34 years built up then you’ll receive a proportion of the State Pension.

If you haven’t started receiving your State Pension yet, you can check your State Pension forecast here to see how much you might get.

What is the triple lock?

To protect the UK State Pension from the effects of inflation, it increases each year in April.  The current ‘triple lock’ system ensures that the increase is the highest of the following three measures: average earnings growth, annual inflation up to the previous September, or 2.5%. 

In September 2023, the average wage rose by 8.5%. As this is higher than 2.5% and the inflation rate of 6.7%, pensioners got an 8.5% boost for the tax year 2024/25.

Personal Allowance kept the same for 2024/25

It wasn’t all good news for some pensioners, however. Despite the new State Pension increasing, the tax-free Personal Allowance has not. This is the amount of income most people can have before they start paying income tax. 

Rather than rising with prices, the Personal Allowance has been frozen at its current level of £12,570 until the end of the 2028 tax year. 

This means that pensioners receiving the new State Pension plus more than £1,068 of additional income per year could be eligible for income tax where previously they were not. Others who already paid tax face paying more income tax this year.

According to the Institute for Fiscal Studies, over 60 per cent of pensioners receiving the State Pension now pay income tax, up from around 50 per cent in 2010. 

However, research by the House of Commons for the Liberal Democrats reveals that an extra 1.6million pensioners will be hit with income tax bills in the next four years as a result of the Annual Allowance freeze.

The table below shows that if the State Pension were to continue to rise at the 8.5% rate that it did in April 2024, the annual new State Pension income itself could soon exceed the Personal Allowance.

Of course, with inflation falling we could well see the Triple Lock increase fall below 8.5% in the next two years. However, any increase would potentially push more people into income tax.

Could you boost your income with equity release?

If you find that your State Pension and other benefits are not meeting your income needs, have you considered equity release? Thousands of homeowners have unlocked the extra money they need from their homes – without having to sell up or move.

Before you make a decision, you’ll need to speak to a specialist adviser. They can explain how equity release works, but also make sure you are aware of some potential pitfalls of this style of lending. For example, equity release will reduce the value of your estate and the amount of inheritance you leave.

You don’t want to rush anything, so our selected advisers can answer all your questions before searching for a plan that may best suit your wants and needs. To find out how much tax-free cash you could release, check here or call us on 0808 178 3055 or request a call back to arrange an appointment with an adviser.

Sources:

• State Pension increased by 8.5% in April 2024: Government reaffirms commitment to backing pensioners with £900 rise to state pension. GOV.UK. Accessed 7 May 2024.
• State Pension now pays £221.20: State pension and triple lock. BBC. Accessed 7 May 2024.
• Triple lock sees State Pension rise by 8.5%: What is the State Pension triple lock? Money Helper. Accessed 7 May 2024

About Clare Yates. With over a decade’s experience writing about later life financial planning, Clare offers a wealth of knowledge about equity release, pension annuities, wills, LPAs and more. When she isn’t writing, Clare likes to spend her time baking and going on walks with her husband, two children and their rescue dog. Follow Clare on LinkedIn