State pension for couples set to rise by more than £1,000 a year in April

Millions of pensioners could see their state pension rise by around £500 a year next April, with the latest wage figures providing the strongest indication yet of the increase to come. The rise would push the annual figure to over £13,000 and above the personal allowance – the amount of income you can have before paying tax – for the first time if wage figures remain at their current level or higher. This would mean couples receiving the state pension will see a boost over £1,000 a year. Average total pay rose by 4.1 per cent in the three months to June, according to the latest figures from the Office for National Statistics (ONS) – comfortably higher than the current inflation rate of 2.6 per cent. Next month’s wage figures will be used to decide how much the state pension goes up under the triple lock, which sees it increase by whichever is highest of average wages (May to July), September’s inflation number or 2.5 per cent. But unless inflation rises very sharply in the next three months, it is the average earnings growth figure which is likely to be the higher of the two and will determine the increase in the state pension. Shorts So, while today’s 4.1 per cent figure cannot be used to calculate the final increase, it is an important signpost. Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “With inflation standing at 2.6 per cent, this suggests, barring a shock inflation spike over the next couple of months or collapse in average wage growth, that wages will be the element used.” The full new state pension is currently £241.30 a week. A 4.1 per cent increase would take this to around £251.20 a week – an increase of about £9.90 a week, more than £500 a year for individuals and over £1,000 for couples. That would take its annual value from about £12,548 to around £13,060. Tom Selby, director of public policy at AJ Bell, said: “Crucially, this will mean that the full state pension amount exceeds the personal allowance of £12,570. “The government has said people just in receipt of state pension income above this figure will not have to pay income tax on the benefit, although details on exactly how this will work remain thin on the ground.” This does not mean every pensioner would suddenly have to pay tax on their state pension. The government has previously said pensioners who are wholly dependent on the new state pension with no private pension, or those receiving only the old basic state pension will not have to pay income tax as a result. Yet, the precise mechanism for delivering that promise has yet to be set out in detail. Steve Webb, former pensions minister and partner at LCP, said: “Based on today’s figures, it is highly likely that it will be average earnings growth which comes out on top. “Unless things change sharply in the next month, those on the new state pension can expect to see an increase of around £500 per year next April. “But the sting in the tail is that this will take the standard rate of the new state pension above the tax threshold. “We therefore urgently need to know how the government plans to fulfil its pledge to make sure that those wholly dependent on the new state pension will not be charged income tax next year.” Older pensioners would also get a boost The increase would also benefit people receiving the old basic state pension which applies broadly to men born before 6 April 1951 and women born before 6 April 1953. Its full basic rate is £184.90 a week, although some pensioners also receive additional state pension entitlements such as SERPS or the state second pension. A 4.1 per cent increase would take this to approximately £192.50 a week. That is an increase of around £7.60 a week, or just under £400 a year. The new state pension applies broadly to men born on or after 6 April 1951 and women born on or after 6 April 1953. The full rate is currently £241.30 a week and usually requires 35 qualifying years of National Insurance contributions, while at least 10 years are generally needed to receive any amount.