Millions of pensioners in the UK will be looking forward to a pleasant surprise. State pension is likely to increase more than what the forecasts predicted, bringing some extra cash into their pockets from April next year. According to new figures from the Office for National Statistics, the rise is expected to be bigger than was initially estimated.

What’s Going On?
The ONS has revised its calculation for wage growth statistics, which will automatically increase the amount collected by pensioners. Between April and June, wages were estimated to have risen by 4.1%, above the earlier estimate of 4%. This will be an important number when the government determines how much to hike the state pension.

The UK has something called a “triple lock” system for state pensions. It means every April, pensions increase according to whichever of the following three is largest: inflation, wage growth, or 2.5% on its own. For next year, it now appears to be wage growth that will be the bigger influence, so pensioners will receive slightly more than was anticipated.

So what does this mean?
For new state pension, the weekly amount would go up from £221.20 to £230.30. Pensions would increase by £9.10 per week or £473 a year compared to earlier estimates of the apparent rise of £460. Pensioners would thus be due for £11,975 annual instead of the current £11,502.

There are also significant rises for the basic state pensioners. Their weekly payment is to go from £169.50 to £176.45, meaning their weekly addition is £6.95 or £361 per year. Their total annual payment is going to rise from £8,814 to £9,175.

This is all welcomed by pensioners, but it will actually be a very expensive policy for the government. According to the Treasury, this would increase the total by £100 million.

Why Does Triple Lock Matter?
The triple lock has been set up to guarantee that the income of pensioners is consistent with the cost of living. That is to say, the system ensures pensions will rise with either inflation and/or wage growth or a flat 2.5%, whatever the higher amount may be. Wage growth and inflation both have been contributors in the last few years for increasing pensions.

Wage growth, it seems, is going to lead the charge this year, with expected inflation numbers under 2%. The inflation numbers are to be put out shortly, but experts predict that wage growth will still be the key figure for pension increases.

What Experts Say
Welcoming the news are certainly staff and customers of Steve Webb, a partner with consultancy firm LCP. Mr Webb says: “While the extra money is indeed good news for pensioners in general, it does, of course, pose a challenge for the Chancellor as he prepares the upcoming Budget.”.

“The rate of the new state pension will now be close to £12,000 per year, which is very close to the tax-free personal allowance of £12,570,” said Webb. It means that many pensioners will probably pay taxes on their pensions for the first time, unless tax rules change.

Will More Pensioners Pay Tax?
This may mean many pensioners will be taxed on their income as the state pension approaches the limit of the tax-free personal allowance. Experts say that, next April, more than 300,000 extra pensioners will start paying taxes once the pension rate begins rising.

This has brought calls to government to reform personal tax allowances, which have been at £12,570 for years. If nothing changes with this allowance, then the state pension will be taxed more and more.

The Chancellor’s Answer
Chancellor Rachel Reeves has announced that she is aware of this increase, and she will finally announce the details in the Budget on 30 October. She previously said that this increase was about £450 per year, although according to the new wage growth data, it could be much more.

Reassuring the pensioners, Reeves said that a rise in state pensions would far outweigh the recent reduction in the winter fuel payment. While the former worth up to £300 for most pensioners has now been reduced or cut out for many this year, the Chancellor is adamant that the pension increase will put pensioners better off overall.

What’s Next?
The Budget is approaching the end of October, and pensioners across the UK will be eagerly waiting to hear the final details of the increase. The government is also coming under pressure not only from pensioners but also experts who are calling on changes in tax rules to prevent pensioners from paying more taxes as a result of the hike in the state pension.

At least, for now, pensioners can be a bit more upbeat, knowing that the state pension will increase more than it had anticipated, thus bringing some welcome financial relief next year.

Quick Recap
State pension hike: State pensioners will enjoy a larger increase next April as revised wage growth figures have prompted the government to revise its forecasts.

New weekly rates: The new state pension is to increase to £230.30 a week, and the basic state pension will increase to £176.45 per week

Annual pension: Those receiving the new state pension will accrue about £11,975 annually, and those on the basic pension will get £9,175.

Cost to Government: The additional increase will incur a cost of about £100 million for the government.

More pensioners will pay tax: As a result of increased pension sums, more pensions will be taxed unless the tax-free personal allowance is adjusted
With this in place, millions of pensioners may look forward to a bit more financial comfort going into 2024!