The State Pension is set to rise by around 11% next year, as the Government has committed to the much-debated triple lock.

The State Pension triple lock guarantees that the benefit for retirees will rise by inflation, wage growth or 2.5% – whichever is higher at the time of the update. This is set to be decided by the data in September, with the rise implemented from the new tax year, 6 April 2023. This will affect around six million retirees in receipt of the benefit.

11% rise?

On the basis of those three inputs, the State Pension is likely to rise by up to 11%. This is not guaranteed, but what is forecasted by the latest inflation expectations from the Bank of England.

This has been known for some time, but the Government cancelled the triple lock last year. It did this because wage data at the time in 2021 was abnormally high.

But unlike inflation, which is high for particular economic reasons, the wage data was unusually high thanks to problems with the Office for National Statistics (ONS) information collection during the pandemic.

That wage data has now normalised, but inflation is at record levels. Despite this, the Government has now reaffirmed its commitment to the rule, leaving State Pension recipients in line for a bumper benefit increase.

The Government has come in for criticism over its decision to uplift the State Pension in line with inflation, particularly because workers aren’t receiving such generous pay increases, per ONS data, nor is it hiking other benefits such as Universal Credit by equivalent amounts.

Cash terms

Those who receive the full new State Pension currently receive £185.15 per week. If you defer taking the State Pension, this weekly payment can be larger once you do start claiming.

Those who reached State Pension age before 6 April 2016 will get a different amount which depends on the basic State Pension rules.

In cash terms for those who are eligible for the full new State Pension, an 11% uplift would be around £20.60 per week extra, or an extra £1,071.20 per year. This would take the State Pension payment over £10,000 for the first time ever to around £10,699 per year.

While this is a relatively small amount compared to other areas of wealth and income, it does form an often-essential part of many retirees income, especially in later years of life.

For those with ample income from wealth, or even those who are happy to continue working later in life, deferring the State Pension can be a really effective way to build up extra earnings for later in life.

Despite popular imagination, the State Pension isn’t accessed from a pot of money someone works towards over their adult life. Contributions are measured through National Insurance payments by qualifying year. The more of these you build, the more State Pension you’ll accrue for retirement, until you reach the ‘full’ amount.

If you spend any time out of the workforce, for reasons such as caring for a relative, or perhaps if you care for your children full time, it’s really important to claim National Insurance Credits (NICs) to ensure when you get to retirement age you have the full quantity you need.

If you’d like to discuss this, or anything else regarding your wealth journey, don’t hesitate to get in touch.