State pension to rise by 3.9% in April giving pensioners £343 extra a year
RETIREES are set to see their state pension rise by up to £343.20 a year from April.
That's because the state pension is calculated using the so-called "triple lock" arrangement, which means it rises by the greater of earnings, inflation, or 2.5 per cent.
This is based on the previous year's consumer prices index (CPI) measure of inflation in the year to September and on earnings in the year to September - both of which are announced in October.
And as CPI was today revealed as 1.7 per cent, it means the state pension will rise by the average earnings rate of 3.9 per cent also announced this week, which is the highest figure of the three.
In reality, this will see the new state pension rise by up to £6.60 a week from a maximum of £168.60 a week to £175.20 a week at the start of the 2020/21 financial year.
The new state pension is for those who build up national insurance contributions after April 2016.
What are the different types of pension?
WE round-up the main types of pension and how they differ:
- Personal pension or self-invested personal pension (Sipp) - This is probably the most flexible type of pension as you can choose your own provider and how much you invest.
- Workplace pension - The Government has made it so it's compulsory for employers to automatically enroll you in your workplace pension, unless you choose to opt out. These so-called defined contribution (DC) pensions are usually chosen by your employer and you won't be able to change it. The minimum contributions have risen to 8 percent, with employees now paying in 5 percent and employers contributing 3 percent. This is up from the 5 percent of contributions workers and companies were required to pay in last year, where employees contributed 3 percent and employers 2 percent.
- Final salary pension - This is a also a workplace pension but here, what you get in retirement is decided based on your salary, and you'll be paid a set amount each year on retiring. It's often referred to as a gold-plated pension or a defined benefit (DB) pension. But they're not typically offered by employers anymore.
- New state pension - This is what the state pays to those who build up national insurance contributions after April 6 2016. The maximum payout is £168.60 a week and you'll need 35 years of national insurance contributions to get this. You also need at least ten years' worth of national insurance contributions to qualify fullstop.
- Basic state pension - If you build up national insurance credits before April 2016, you'll get the basic state pension. The full amount £129.20 per week and you'll need 30 years of national insurance contributions to get this. If you have the basic state pension you may also get a top-up from what's known as the additional or second state pension. Those with a national insurance record before and after April 2016 fall under transitional arrangements that means what they get depends on how many credits they have under each system.
Ten years worth are needed to get the new state pension, while 35 years are needed to qualify for the full amount.
Meanwhile the maximum basic state pension, which is for those with a national insurance record pre-April 2016, will rise by £5.05 from £129.20 a week to £134.25 a week.
You need at least 30 qualifying national insurance years to get the basic state pension.
Those with a national insurance record spanning before and after April 2016 fall under transitional arrangements, where how much they get depends on how much has been built up under each scheme.
But the Department for Work and Pensions (DWP) warns that the state pension increase has to be signed off by Parliament before it's officially confirmed.
This is expected to happen by the end of the year.
Tom Selby, senior analyst at financial provider AJ Bell, said: “Retirees will enjoy a near-4 per cent increase in their state pension payouts next year, more than double the rise in average prices during September and thus a real boost to people’s incomes."
But former pensions minister and director of policy at financial provider, Royal London, warns that because over-75s will have to start paying for previously free TV licences, this will eat into their pension.
How can I check my retirement age?
IF your pension is something that is on your mind, then you might be wondering what age you can retire.
Firstly, use the to check your state pension age.
Next check retirement ages on workplace pension schemes - Aviva says this can massively impact your windfall once you enter your golden years.
For advice, you can contact for free online or on 0800 011 3797.
He said: “The pension rise will be great news for those not affected by the TV licence changes.
"But there is a sting in the tail for around 1.7million single people over 75 who will experience a squeeze in their standard of living once they have paid over £150 for a TV licence next year.
"This makes it all the more important that older pensioners check if they might be entitled to claim pension credit so that the poorest pensioners do not face this squeeze."
At present a TV licence costs £154.50 for a colour TV and £52 for a black and white one.
But the BBC announced in June that it was axing the free perk given to over-75s from June 2020, meaning only those on pension credit can get it without paying a fee.
Experts say today's inflation announcement will also see the amount you can save into your pension over your lifetime rise by 1.7 per cent from April 2020, from £1,055,000 to £1,075,000.
The Sun has put this to HMRC and we'll update this story as soon as we get a response.
More on pensions
Millions of women could be forced to work longer after a state pension age court battle was lost earlier this month.
Although hundreds of thousands of women could be entitled to an extra £129 a week in their pension pot.
And whether you're a man or a woman, here's how to boost your state pension by up to £250 a year.
Plus, we round-up everything you need to know about when you'll get your state pension and how much it will be worth.