The state pension will rise by 2.6% in the 2019/20 tax year, today’s Budget confirmed, and pensions were spared from any dramatic cuts.
After much speculation that there would be a reduction in how much individuals can contribute into a pension each year, the Chancellor refrained from reducing the current cap.
He did announce that the lifetime – the total amount you can put into a pension – for pension savings will increase in line with CPI for 2019-20, rising to £1,055,000.
- For up-to-the-minute coverage of the Chancellor’s announcement, visit our Autumn 2018 Budget live feed.
State pension to increase by 2.6%
The state pension will increase by 2.6% from 6 April 2019.
With CPI inflation of 2.4% in September 2018 and average earnings of 2.6%, the government has used average earnings to uprate the state pension under the government’s ‘triple lock’ guarantee.
Both the pre-April 2016 basic state pension and the new state pension are protected by the triple lock guarantee. It means the state pension rises each year by the greater of annual price inflation, average earnings growth or a guaranteed 2.5% minimum.
Basic state pension rises to £129.20 per week
Those who are entitled to the full new single-tier state pension will see their payments increase by £4.25 per week, taking the weekly amount from £164.35 to £168.60.
New state pensioners will be £221 better off by the end of the 2019/20 tax year, with annual income increasing from £8,546.20 to £8,767.20 a year.
The basic state pension will rise by £3.25 per week (from £125.95 to £129.20 per week). This will translate into an annual boost of £169 a year with total annual income rising from £6,549.40 to £6,718.40.
Our graph shows the amount of state pension you receive per week.
Pensions lifetime allowance to be £1.055 million in 2019-2020
The pension lifetime allowance has been set at £1,055,000 for 2019-20.
You can save as much as you want to in your pension during your working life – but if it exceeds a total amount (the lifetime allowance), you could be hit with a hefty tax charge.
Our graph below shows how the pension lifetime allowance has changed over recent years.
It was expected that there would be a further reduction in the pensions annual allowance, but this wasn’t the case.
The annual allowance system works by permitting individuals to contribute up to £40,000 into a pension and receive income or pension tax relief on those contributions.
A new annual allowance cap of £30,000 had been anticipated, but this may have penalised savers in defined benefit (DB) pensions, particularly those in public sector schemes such as the NHS pensions and Teachers’ pensions.
Our graph shows how the annual pensions allowance has decreased since 2006.
Pensions dashboard update
The Budget document also confirmed that the state pension will appear in a soon-to-be launched pensions dashboard – an online portal that will allow you to all of your pensions in one place.
And the government will launch a consultation to find ways to help more self-employed people save into a pension.
Finally, the government is clamping down on pension scammers by bringing in a ban to pension cold-calling.
Calculate your pension tax relief
You can use our pension tax relief calculator to work out how much relief you’re entitled to this tax year or in 2019-20.
Alternatively, our pension lump sum calculator allows you to work out how much tax you’ll pay when you withdraw from your pension.
This story was updated on 2 November to correct the date at which the new state pension rates kick in.