Chancellor confirms bumper state pension increase of 8.5% alongside new 'pot for life' proposals

The full new state pension will be worth more than £11,500 next year after the Chancellor, Jeremy Hunt, confirmed in today's Autumn Statement that the triple lock will be maintained.

There was speculation that the government would suspend the triple lock and downgrade the increase to 7.8%, but payments will rise by 8.5% in April. 

The Chancellor also announced plans to deal with the problem of people having lots of small pension pots, plus initiatives to make your money invested in pension funds more productive. 

Here we explain what the proposals could mean for you. 

• Find out more: what the Autumn Statement means for your money

How does the state pension triple lock work?

The triple lock guarantees an increase in the state pension every year. The size of the increase is determined by one of three measures: the rate of inflation (as of the previous September), average earnings growth (as of the previous July) or 2.5%, whichever is highest.

In 2022-23, the triple lock was reduced to a double lock to address an anomaly in wage growth following the pandemic. The state pension rose by 3.1% (September 2021’s inflation rate) rather than by 8.3%, which was the rate of earnings growth in the wake of the coronavirus outbreak.

The triple lock was reinstated in 2023-24, which led to a record 10.1% inflation-linked increase. 

Why will the state pension rise by 8.5% in 2024?

The average earnings element of the triple lock is based on the average year-on-year increase in wages between May and July. According to ONS figures released on 12 September, this figure was 8.5% (including bonuses), which is higher than September's rate of inflation (6.7%).

Wage growth has been affected by NHS and Civil Service one-off payments which were made in June and July and is the highest regular annual growth rate since comparable records began in 2001 –444 outside of the pandemic. 

The figure drops to 7.8% if bonuses are excluded and there was speculation that the government might link the state pension increase to this instead in an effort to save money.

How much state pension will I get?

If you're entitled to the full level of new state pension you will get £221.20 a week from April 2024, up from £203.85 this year. This change means that pensioners will be £902 better off by the end of the 2024-25 tax year, taking their total income to £11,502.40.  

Pensioners who qualified for the state pension before April 2016 and receive the basic state pension will see their weekly payments rise from £156.20 to £169.50. This amounts to a £692 increase in 2024-25, giving a total annual income of £8,814.

How much state pension you get depends on your National Insurance record, so you could get less than the headline rates (or more if you’ve built up substantial additional state pension).

State pension payments are treated in the same way as other income for income tax purposes. You have to pay income tax on any earnings above the personal allowance of £12,570. 

How would a pension 'pot for life' work?

Alongside confirmation of the state pension increase, the Chancellor also used the Autumn Statement to unveil a potential shake-up of the private pension system.

The government will be consulting on the idea of a 'pot for life', which would allow workers to ask their employer to pay contributions into an existing pension pot.

At the moment, each time someone changes jobs they’re enrolled in a new scheme chosen by that employer.

This has created millions of small pension pots as workers move between jobs and switch schemes, making it challenging to keep track of them all.

Package of wider pension reforms set in motion

The Autumn Statement also marked a milestone in the government's delivery of its Mansion House reforms. 

The Chancellor announced a £320m plan to help pension funds invest in high growth, innovative companies to grow the economy and deliver good outcomes for savers.

It's claimed that the measures will provide an extra £1,000 a year for the average earner who starts saving from 18.