The State Pension not only provides a regular and stable income in retirement, but it rises in line with the cost of living too. It does this via the State Pension triple lock, a mechanism that makes your State Pension an important bedrock of your retirement plans.
This is especially true currently, with the cost of living high and rising.
After months of speculation, Jeremy Hunt used his recent autumn statement to confirm that he would be honouring the triple lock. Soaring inflation means that you will receive a huge boost to your State Pension in April 2023.
Keep reading for a closer look at how the triple lock works and why it’s great news for your State Pension next year.
The amount you receive is based on your National Insurance record
You become eligible for the State Pension when you reach State Pension Age. This is currently 66 but could rise to 68 by as early as 2039.
The amount of State Pension you receive is based on your National Insurance contributions (NICs) and the number of “qualifying years” you have.
You’ll need 35 qualifying years of NICs to receive the full new State Pension amount. If you have between 10 and 35 qualifying years, your payments will be calculated based on the exact number of years. With less than 10 qualifying years, though, you won’t be eligible to receive the State Pension at all.
You can use the government’s website to check your National Insurance record and see if you have any gaps in your contribution history.
The current new full State Pension for 2022/23 is £185.15 a week or £9,627.80 a year.
Your State Pension will rise in April 2023 thanks to the triple lock
The coalition government introduced the triple lock back in 2010. Designed to ensure that the State Pension kept pace with the cost of living, it was decided that payments would increase each year in line with the higher of:
- Inflation, as measured by the Consumer Price Index (CPI)
- Average UK earnings growth
- 2.5%.
The triple lock was replaced by a so-called “double lock” in 2021. This was due to a quirk of the government’s coronavirus “furlough” scheme that saw wage growth soar. This year, however, it is soaring inflation that has caused the government headaches.
April’s rise is calculated using figures from the previous September. The cost of living crisis has seen inflation steadily rising all year, which meant all eyes were on September’s CPI figure.
Inflation for September, according to the Office for National Statistics (ONS), was 10.1%, meaning those receiving the State Pension will see a massive boost to their income from April.
If you are on the full, new State Pension, the additional amount should equate to more than £900 a year. Your new weekly amount will be £203.85 (£10,600 a year).
The financial security of the State Pension makes it invaluable in the current climate
Rising living costs have been caused by a combination of factors. Global economies struggling to recover from the coronavirus pandemic have faced supply chain crises, labour shortages, and the effects of China’s economic slowdown and Russia’s invasion of Ukraine.
With UK inflation currently at a 41-year high of 11.1%, your income won’t be going as far. As the Bank of England looks to combat inflation (by rising interest rates and the cost of borrowing), the government has also looked to fill its fiscal black hole.
Jeremy Hunt’s autumn statement featured £55 billion of tax rises and spending cuts. While the effect of some changes will become quickly apparent, some of the stealth taxes announced might take longer to have an impact.
Allowance freezes – to the Lifetime Allowance (LTA) and the Inheritance Tax (IHT) thresholds could make a huge difference to your estate and retirement plans over the next five years.
In this context, the decision to honour the State Pension triple lock is an important one. The State Pension provides a solid foundation on which to build the rest of your retirement plans. We will always be on hand to help you with this so be sure to get in touch.
Get in touch
If you have concerns about any of the announcements from the chancellor’s autumn statement and you’d like to discuss your long-term financial terms as we prepare for a new year, we can help. Contact us now to find out how our Chartered financial planners could help you.
Please note
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.
