The state pension will rise by 3.1% in the 2022-23 tax year, equating to an annual boost of £289 for some pensioners.
Documents published alongside the Chancellor’s Budget today confirmed that, for this year only, the increase will not be determined by the usual triple lock guarantee, in order to avoid a ‘disproportionately inflated rise’.
The Chancellor also announced a consultation of the current charge cap of 0.75% on defined contribution auto-enrolment pension schemes.
Meanwhile, the core pension tax-relief system and rules for inheriting pensions have been left unchanged, despite considerable speculation that the government would make these arrangements less generous.
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State pension to increase by 3.1%
It has been confirmed today that the state pension will increase by 3.1% from 6 April 2022.
Those who qualified for the pension after April 2016 and who are entitled to the full new single-tier state pension will get £185.15 a week from 6 April 2022, up from £179.60.
The change means pensioners will be up to £288.60 better off by the end of the 2022-23 tax year, taking their total income from the state pension to £9,627.80.
Retirees who reached state pension age before April 2016 and receive the basic state pension will see their weekly pension payments rise from £137.60 to £141.85.
This represents a £221 pay rise in 2022-23, taking total annual payments to £7,376.20.
Whether you receive the state pension under the old or new system, the exact amount you receive depends on various factors, including your NI contributions record, and whether you built up any additional state pension during your career.
- Find out more: Autumn Budget 2021 key points
Triple lock suspended for 2022-23
Increases in the state pension are usually protected by a triple lock guarantee.
The triple lock stipulates that payments rise each year by the highest of three measures: inflation (as of the previous September), average earnings growth (as of the previous July), or 2.5%.
Exceptional circumstances have seen the Chancellor reduce the triple lock to a double lock for 2022-23.
The earnings element has been suspended for a year as a swift recovery in wages in the wake of coronavirus would have qualified pensioners for an 8.3% hike in their state pensions.
This would have meant an increase in the basic state pension to £149 per week. The single-tier new state pension would have reached £194.50 per week. The change to the double lock is expected to save the government around £6.7 billion.
Pension charge cap to be reviewed
Today’s Budget also unveiled plans for a consultation on the reform of the charge cap on defined contribution (DC) auto-enrolment pension schemes, which currently stands at 0.75%
The Chancellor is looking to make it easier for billions of pounds of pension savings to be invested in long-term projects. DC pension managers have previously avoided these private equity funds as performance fees could mean that they breach the 0.75% cap.
The move is also designed to allow investment in more illiquid assets, including greener investment options.
This change, if confirmed, will enable your pension scheme to invest more widely, but the upshot might be higher charges for pension savers.
Chancellor resists major pension tax changes
Changes to the pensions tax relief system had once again been mooted ahead of the Budget, but the Chancellor has largely left the system as it is for now.
However, one change will mean around 1.2 million low earners who aren’t receiving tax relief on their pension contributions could benefit by an average of £53 a year.
A previous anomaly in the system meant that low earners in ‘net pay’ schemes (where pension contributions are taken in full from your pay before tax is deducted) were losing out on tax relief on their contributions.
From April 2024, the government will introduce a 20% top-up for those affected, bringing them in line with equivalent savers paying into pension schemes where tax relief is claimed at source.
As part of the March 2021 Budget, the pensions lifetime allowance was frozen at £1,073,100.
If you save more than this into your pension during your working life, you could be hit with a hefty tax charge when you come to access this money.
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