Millions of pensioners will receive a pay rise of 3.9% in April 2020, in line with average earnings - equating to an increase of up to £343.20 for the year.
The 3.9% rise was confirmed after the Office for National Statistics (ONS) revealed today that inflation remained at 1.7% in September. The state pension payment is protected by the 'triple lock' guarantee which means it increases each April by the greater of September's price inflation, earnings growth or 2.5%.
This year, the highest measure was average earnings, guaranteeing a 3.9% boost on 6 April 2020.
Here we reveal how much the state pension will pay next year as well as what will happen to the additional state pension and lifetime allowance limit.
Millions of pensioners will enjoy the biggest pay rise since 2012 next year, with a 3.9% boost to payments, thanks to earnings growth between May and July.
Previously the ONS had calculated earnings growth between May and July was 4% but it revised this down to 3.9% yesterday.
The change means this group of pensioners will be up to £343.20 better off by the end of the 2020-21 tax year, taking their total income to £9,110.40.
Pensioners that reached state pension age before April 2016, and receive the basic state pension, will see their weekly payment rise from £129.20 to £134.25 a week next year.
This amounts to a £262.60 pay rise in 2020-21, with income rising to £6,981a year.
|New state pension (weekly)||New state pension (annual)||Basic state pension (weekly)||Basic state pension (annual)|
|6April 2019 - 5April 2020||£168.60||£8,767.20||£129.20||£6,718.40|
|6April 2020 - 5April 2021||£175.20*||£9,110.40||£134.25*||£6,981|
|Change||+ £6.60||+ £343.20||+ £5.05||+ £262.60|
*Figures rounded to nearest 5p
The state pension is protected by the 'triple lock' guarantee.
This means payments are increased each year by either annual price inflation in September, average earnings growth (as of July) or a guaranteed minimum of 2.5%.
As September 2019's CPI measure was 1.7% - the lowest since December 2016 - and average earnings growth was recorded at 3.9%, the government will use average earnings to increase the state pension for the second year running.
The table below shows how the state pension has increased since April 2012.
|Tax year||September inflation (CPI)||Averages earnings||Guaranteed minimum||Which part of the triple lock was used to raise the state pension?|
|6 April 2012||5.2%||2.7%||2.5%||Inflation (CPI)|
|6 April 2013||2.2%||1.5%||2.5%||Guaranteed minimum|
|6 April 2014||2.7%||1.2%||2.5%||Inflation (CPI)|
|6 April 2015||1.2%||0.6%||2.5%||Guaranteed minimum|
|6 April 2016||-0.1%||2.9%||2.5%||Average earnings|
|6 April 2017||1%||2.4%||2.5%||Guaranteed minimum|
|6 April 2018||3%||2.3%||2.5%||Inflation (CPI)|
The additional state pension is not linked to the triple lock guarantee and is increased by CPI inflation each year.
The amount you earn varies based on the number of National Insurance Contributions (NICs) you've made, your earnings, whether you contracted out and if you topped up your basic state pension. But if you receive any additional state pension, you will see a rise of 1.7% from 6 April 2020.
If you reached state pension age after 6 April 2016, you will be eligible for the new flat-rate state pension, currently £168.60 a week (uprated by the triple lock guarantee). However, you may earn more than the full amount if you have built up some additional state pension. This is called your 'protected payment', which will also rise by 1.7% in line with September's inflation from 6 April 2020.
September's inflation figure also has an impact on the lifetime allowance (LTA), the total you can save across your pensions tax-free.
Back in 2010, this was £1.8m but the government has gradually scaled it back. The last cut, in 2016-17, reduced it from £1.25m to £1m.
Since 2018-19 the limit has been increased in line with CPI and currently stands at £1,054,800.
Today's inflation announcement means the new LTA allowance will increase by more than £17,900, taking it to £1,072,700 (rounded to the nearest £100) from next April.
The amount you get is based on the number of National Insurance Contributions (NICs) you make.
If you reached state pension age before April 2016, you need 30 years of NICs to get the full basic state pension.
This article has been updated to show the revised earnings growth figures from the ONS.