From April 2020, the State Pension is set to rise, making millions of pensioners around £350 a year better off. Under the Government’s ‘triple lock system’, the State Pension will receive a 3.99% boost – the biggest increase since 2012 - but will everyone benefit and, if so, by how much?
Those on the new State Pension can look forward to their weekly allowance rising to £175, but those on the Basic State Pension will see a new weekly income of £134.
Basically, the triple lock is a system introduced by the coalition Government of 2011. Its purpose was to ensure that the Basic State Pension would always rise by a minimum of 2.5% per year, the rate of inflation or the average earnings growth, depending on whichever was greater.
These three benchmarks are the core of the so-called ‘triple lock’. Previous to this, State Pension rises were tied to the retail price index (RPI) – a measure of inflation that was consistently less than the average annual rises in earnings that those of working age enjoyed. The new system was set up to be fairer and to avoid retirees being caught in the ‘pension poverty’ trap.
Annual wage growth in 2019 was originally forecast to be around 4%, with the Government recently revising this to a more accurate figure of 3.99% this month. Because of this being the highest of the three ‘triple lock’ benchmarks, the State Pension is set to rise by a figure well above the current level of inflation – currently standing at 1.7%.
Consequently, pensioners can look forward to an above inflation increase, in real terms.
There are two separate levels of pension entitlement: the older Basic State Pension and the new State Pension which is payable to anyone qualifying to receive their state pension after April 2016. Very simply, your entitlement to one or the other depends on your previous National Insurance contributions, as well as your age. A full explanation, together with a State Pension checker, can be found at the official UK Government website, Your State Pension Explained.
Those who are entitled to the Basic State Pension will see an extra £5.04 per week, equating to a total of £134.24.
Retirees on the new State Pension can look forward to an extra £6.58 per week, rising from £168.60 per week to a new total of £175.18 from April 2020.
Preparing for your retirement is a critical concern for everyone. It’s almost universally agreed in the finance sector that most members of the public are not doing nearly enough to fund a comfortable lifestyle in retirement. Derin Clark’s recent article on Moneyfacts.co.uk, 'Pensioners need a £33,000 a year income to enjoy a comfortable retirement’, examines just how much you need to be saving if you want a retirement unfettered by money worries.
With it being likely you need to boost your pension pot, what methods are there to put more money aside for a comfortable retirement?
The most obvious, of course, is to simply start making - or increase your existing - voluntary pension contributions. However, there are other avenues that you might want to explore.
Moneyfacts.co.uk has a range of easy to understand helpful guides that can help you make the right pension choices. For those who might have left things a little late, there is our Starting a pension at 40 guide. Equally, if you are someone just starting out in the world, but with an eye on the future, then there’s our Starting a pension at 20 guide. If you are interested in exploring using your property as a retirement income then our Equity release FAQs will give you the answers to the most common questions. Our When can I retire? guide outlines what the current State Pension is, what it will be changing to in the future, and further changes that are currently in the pipeline. Why not take a look at our complete pension and retirements guides here.
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