10 Sept 2024

How much could the state pension pay in 2025?

Pensioners could see a 4% rise in the 2025-26 tax year

The state pension could rise to just under £12,000 next year if wage growth continues to remain higher than inflation.

Each year, the state pension goes up by something called the triple lock. This means state pension payments will increase by either September's CPI inflation figure, average earnings growth between May and July, or 2.5% – whichever is higher.

Here, Which? reveals why the state pension is likely to increase by wage growth in the 2025-26 tax year and how to check your state pension forecast.

How the triple lock works

Brought in by the Conservative-Liberal Democrat coalition government in 2011, the triple lock guarantee means payments are increased each year by whichever rate is higher out of:

September’s Consumer Price Index (CPI) – a measure of inflation
average earnings growth (as of July)
a guaranteed minimum of 2.5%.

The triple lock has been the subject of debate over the past couple of years thanks to a series of bumper increases, which has raised questions over how it will be funded in the years to come.

For example, pensioners saw the state pension rise by 10.1% in the 2023-24 tax year due to soaring inflation, and 8.5% in the 2024-25 tax year due to earnings growth.

However, despite this, all major parties — including Labour – in the run-up to the general election pledged to keep the triple lock formula.

Find out more: how much state pension will I get?

How much could it rise by next year?

The government uses the average wage growth year-on-year for the May-to-July period. The Office for National Statistics (ONS) has revealed this was 4% (including bonuses).

Meanwhile, the latest CPI measure of inflation, which tracks the overall price changes for a basket of more than 700 popular goods and services, was 2.2% in July.

Experts believe inflation is unlikely to outstrip wages, so the new state pension should rise by 4% next April.

Find out more: Inflation jumps to 2.2% in July – how many savings accounts can beat it now?

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How much could the state pension be worth next year?

Let’s presume the state pension increase is 4%.

Currently, the full level of the new single-tier state pension is £221.20 a week, or £11,502.40 a year.

If it were to rise by 4%, it would be worth £230.05 a week, or £11,962.60 a year, which is a rise of over £460.

Currently, the basic state pension is set at £169.50 a week in 2024-25 (£8,814 a year). A 4% increase would raise this to £176.30 a week or £9,167.60 per year – a boost of over £353.

Find out more: how do I qualify for the state pension?

Will pensioners pay tax on the state pension next year?

The state pension isn't tax-free, but the money you receive is paid 'gross' – without any tax being deducted.

If your total income from all sources – including the state pension – is greater than your personal allowance, tax is due on your state pension.

This will normally be deducted from any private pension or earnings you might have, which are paid through the PAYE system.

However, if you have no PAYE income, you'll have to complete a self-assessment tax return and pay any tax due directly to HMRC.

If the state pension did rise to £11,962, this would be just shy of the personal allowance, which is due to remain at £12,570 for most people in the 2025-26 tax year.

So if you have a workplace pension, or any other form of income, it’s very likely this will push you over your personal allowance and into paying basic-rate tax.

Find out more: 6 ways pensioners can cut their 2024-25 tax bill

How to check your state pension forecast

If you're eligible to receive the state pension, it's paid to you when you've reached state pension age.

This is currently 66 for women and men, but two more increases are already set out in legislation.

Between 2026 and 2028 it will gradually rise to 67 for those born on or after April 1960, with another gradual rise to 68 between 2044 and 2046 for those born in or after 1977.

The amount you get depends on how many National Insurance Contributions (NICs) you've made during your working life.

You'll need at least 35 qualifying years of contributions to qualify for the full new state pension, and at least 10 years' worth to get anything at all.

If you reached state pension age before April 2016, you'll need 30 years of contributions to get the full basic state pension.

For anyone who hasn't yet reached the state pension age, you can use an online government tool to check your state pension forecast. This will tell you how much you can get, when you can start receiving payments, and whether you're able to increase them.