What’s next for the State Pension and how might this affect you?

On 1 January 1909, retirees queued up to receive their first ever “Old Age Pension” payment.

It’s now known as the State Pension and retirees no longer have to queue up at the Post Office to collect their payments – but the basic principle of this income remains the same.

Whether you’re at State Pension Age (66, rising to 67 in the 2026/27 tax year) or approaching it, you may already know that it forms the bedrock of many people’s financial circumstances in retirement.

As of the 2024/25 tax year, the full new State Pension stands at £221.20 a week, or £11,502.40 a year.

To qualify for the new State Pension, you need to have been born after 6 April 1951 if you’re a man, or 6 April 1953 if you’re a woman.

The full new State Pension is awarded to those who have worked for 35 or more “qualifying years” in which they’ve paid National Insurance contributions (NICs) or received the equivalent credits or benefits.

Ahead of the upcoming Budget, which is set to be delivered on 30 October, media rumours have begun to swirl around the future of the State Pension.

Read to discover insights into what may happen to the State Pension in 2025, and how this might affect you.

The State Pension triple lock lifts the State Pension in line with the higher of wage growth, inflation, or 2.5%

The triple lock was brought in by the coalition government in 2011 and aims to provide a fair annual increase to State Pension payments.

As it stands in 2024/25, the State Pension triple lock commits to increasing the State Pension in line with the higher of:

• Inflation as of September in the previous year
• Wage growth between May and July in the previous year
• 2.5%.

This year, in April 2024, the State Pension rose by 8.5% in line with inflation, from £203.85 to £221.20 a week. The triple lock was suspended in the previous year due to extreme inflationary conditions sparked by the pandemic.

The State Pension will rise again in 2025

In 2025/26, the State Pension triple lock will increase payments in line with wage growth, as this figure is higher than both inflation (at 1.7%) and 2.5%.

Sky News reports that wage growth between May and July 2024 (including bonuses) stood at 4.1%. This would increase the weekly State Pension payment to £230.30 a week or around £11,975 a year – an uplift of more than £470 a year.

2 important State Pension tips for current or future retirees

1. You can back-pay missed National Insurance contributions

Until 5 April 2025, you have the opportunity to back-pay missed NICs between 2006 and 2023.

For instance, if you have only worked for 33 qualifying years, you may be able to top up the NICs you missed for the remaining two years and benefit from the full new State Pension.

You may wish to do the following:

• Check your State Pension forecast to see if you’re on track to receive the full new State Pension
• If you aren’t, look into paying voluntary NICs.

A full year of voluntary Class 3 NICs costs £824.20. Class 2 NICs would cost an additional £163.80. According to Standard Life, these could boost your State Pension by £275.08 a year – so if you live for 20 years while claiming the State Pension, you’ll have topped up your retirement income by around £5,500.

Paying voluntary NICs can be beneficial but it is complex, with cost and eligibility factors depending on your age, the years you wish to fill in, and several other components.

It may help to contact your financial planner for help boosting your State Pension eligibility before the April 2025 deadline.

2. Your State Pension contributes towards your Income Tax liability

For most earners, the Income Tax Personal Allowance is £12,570 a year.

With the full new State Pension reaching almost £12,000 a year in April 2025, this means that most of the income you earn above the State Pension could be subject to Income Tax at your marginal rate.

In positive news, this means your State Pension could form an even more valuable part of your retirement income. However, it’s crucial to discuss your potential retirement tax liability with your financial planner, in order to anticipate and budget for the amount of Income Tax you’ll likely pay.

Get in touch

To speak to a financial planner about the State Pension or any other financial matter, email enquiries@prosserknowles.co.uk or request a callback from one of our advisers.

Please note

This article is no substitute for financial advice and should not be treated as such. To determine the best course of action for your individual circumstances, please contact us.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate tax planning.