The amount by which the new state pension rises is determined by the so-called state pension ‘triple lock.’
This guarantees that the state pension will rise in line with inflation, wage growth or 2.5%, whichever is highest for the September figures.
Although inflation for September 2019 was confirmed at 1.7% on the CPI measure, the the state pension will rise in April 2020 by 3.9%, the wage growth figure (unless there is a radical about-turn in the Budget on 11th March).
See the table below for the amount by which state pension payments will increase.
New State Pension –
|Basic state pension (single) –||£129.20||£134.25||+£5.05|
|Basic state pension (married) –||£206.65||£214.75||+£8.10|
Source: Royal London. Pension rates in 2020/21 based on 3.9% uprating, assuming rounding up to nearest 5p.
Steve Webb, director of policy at Royal London and former pensions minister notes that the removal of the free TV licence for many will offset these increases.
“The pension rise will be great news for those not affected by the TV licence changes. But there is a sting in the tail for around 1.7 million single people over 75 who will experience a squeeze in their standard of living once they have paid over £150 for a TV licence next year.
This makes it all the more important that older pensioners check if they might be entitled to claim pension credit so that the poorest pensioners do not face this squeeze.”
The weekly increase in the new state pension amounts to £343.20 per year. However, this is reduced to around £193 when factoring in the added cost of a £150 colour TV licence over 75s will have to pay from next year.
Added to the TV licence fee issue, which is the subject of much debate, the triple lock continues to be a contentious policy.
Tom Selby, senior analyst at AJ Bell, explains: “Such a bumper increase clearly comes at a cost to the Exchequer. On the one hand the triple-lock is quite an odd policy, increasing the real value of the state pension arbitrarily when earnings and inflation are low.
It could be argued a more rational policy would establish what level a ‘fair’ state pension should be, raise the benefit to that amount and then remove the 2.5% element.