The new state pension looks likely to be in line for a relatively large increase next year, but it still won’t to be enough to fund a comfortable retirement.
The new levels of state pension for the coming financial year (2020/21) are usually revealed in or alongside the Autumn Budget statement. But as 2019 has been a strange year – in particular with no Budget – there has been no official announcement yet on what state pensions will be from April 2020.
However, it is possible to work out fairly accurately what the new rates may be, because the basis of state pension increases is fixed.
New state pension, old basic state pension
These are both subject to the so-called ‘triple lock’, which means the annual increase is the greatest of:
- The annual increase in the CPI to September (1.7% in 2019);
- 2.5%; and
- The 3-month average earnings increase to July (3.99% in 2019).
In this instance average earnings are the clear winner. The precise (rounded) figures must await the Department for Work and Pensions’ formal announcement, but it looks like the new state pension (for anyone reaching state pension age (SPA) after 5 April 2016) will rise from £168.60 to £175.30 a week, while the basic state pension will rise from £129.20 to £134.35 a week.
Other state pensions (including SERPS and S2P)
The triple lock is limited to the new state pension and the basic state pension. Other state pension entitlements, such the old additional pension elements for those who reached SPA before 6 April 2016 will increase in line with the CPI, i.e. by 1.7%.
Guy Ovenden, a Chartered Financial Planner at Shoreham based Independent Financial Advisers, Pembroke Financial Services commented “While the increases are to be welcomed, the new state pension is still far from being enough for a comfortable retirement. At just over £9,100 a year from April, it will be more than £3,300 less than the income tax personal allowance in 2020/21. The current national living wage for a 35-hour week works out as more than 60% higher. If you want a retirement that you can enjoy, you need to make sure you have adequate private pension provision on top of what the state provides.”
It’s never too late to start saving so if the thought of trying to get by on £175 per week scares you, it’s a good idea to do something about it sooner rather than later.