State pension to rise by 3.9% in April giving retirees an extra £343 a year

From April 2020, those receiving the new state pension will receive a guaranteed increase of 3.9%.

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.

Inflation for September 2019 was today confirmed at 1.7% on the CPI measure. This means the state pension will rise in April 2020 by 3.9%, the wage growth figure for the three months to July 2019.

See the table below for the amount by which state pension payments will increase.

A table showing the state pension increase from April 2020

Source: Royal London, 16 October 2019. 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 a 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. 

Political problems

Added to the TV licence fee issue, which is the subject of much debate, the triple lock continues to be a contentious political policy.

Tom Selby, senior analyst at AJ Bell, explains: “Such a bumper increase clearly comes at a cost to the Exchequer, and with a general election seemingly inevitable the commitment of politicians to this policy is likely to be tested.

“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.

“However, it is likely the issue will become weaponised in the cauldron of an election battle as politicians desperately seek voter approval.

“Given older people usually head to the ballot box in the greatest numbers, it is extremely unlikely any party will propose significant changes to this popular policy in their respective manifestos.”

Inflation and wages

Inflation remains below the Bank of England target of 2%. The most recent figures reported by the Office for National Statistics (ONS) today show the CPI measure of inflation saw price rises of 1.7% in September.

The CPIH measure, which includes housing costs and is widely perceived to be more accurate showed the same, at 1.7%.

Wages, reported the day before, grew by 3.8% in the three months to August. this was slightly down from 3.9% in the previous period. The earlier 3.9% figure, for the three months to July, is what is referred to for the state pension increase decision, however. 

- This article was first written by our sister magazine Moneywise.

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