This content is for information purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult your Financial Planner here at Vesta Wealth in Cumbria, Teesside and across the North of England.
The State Pension is set to rise in April 2025. The “earnings link” from the triple lock systems means it will rise by 4.1% following the annual increase in the Average Weekly Earnings (AWE). However, many people still have a lot of questions.
Do I need to claim the extra income? How much will I get? Below, our Carlisle financial planners provide a short guide to help you get the best out of the State Pension by April 2025. We hope these insights are useful. Please get in touch to discuss your financial goals and situation with an expert here in Cumbria.
Why is the State Pension rising?
Each year, the State Pension rises to try and protect its “spending power”. As the cost of living increases, each £1 buys fewer goods and services.
To counteract this, the triple lock system raises the State Pension every April, following the highest of one of these measures:
- 2.5%.
- Inflation in September of the previous year. This follows the Consumer Price Index (CPI).
- The average increase in total UK wages (May to June in the previous year).
Currently (in 2024-25), the full new State Pension is £221.20 a week. This amounts to £11,502.40 per year and is available to those who reach State Pension age after April 2016.
After the 4.1% increase on 6 April, the income will rise to £230.25 per week – i.e. an extra £472 per year. Those on the full old basic State Pension will get an extra £363 a year.
Who gets the State Pension?
To get any State Pension, you must meet at least two requirements:
- You must have at least 10 “qualifying” years of National Insurance (NI) contributions on your record. You can check your record on the UK government’s website here.
- You must have reached your State Pension age.
It is important to note that you do not automatically receive your State Pension once you reach your State Pension age. It needs to be claimed. Alternatively, it is possible to defer it to increase future payments.
The State Pension age is set to rise to 67 between 2026 and 2028, and further increases are expected.
Should I defer my State Pension?
You usually no longer have to make NI contributions when you reach your State Pension age. So, if you want to continue working after this, make sure this is reflected on your upcoming payslips and/or tax return (Self Assessment).
Deferring the State Pension can be a good option for some people – e.g. those still working or with other sources of income after age 66. For every 9 weeks you defer, your State Pension increases by 1% (equivalent to 5.8% per year).
However, you need to consider your likely lifespan and how long it could take to recoup the cost of deferring. This takes around 17 years, on average.
For those eligible for means-tested benefits (e.g. Pension Credit or Housing Benefit), be aware that deferring your State Pension could reduce or eliminate this entitlement.
If you have already started claiming the income, you can choose to stop receiving it for a certain period, but you can only do this once.
How do I get the best State Pension?
For those still building up their NI record, the best step is to ensure you have the maximum 35 years of “qualifying” NI contributions under your belt.
If you have “gaps” on your record, you can buy back missing years via voluntary contributions. Normally, you can do this for gaps over the past 6 years. However, gaps within the 2006-2023 timeframe can be filled until April 2025.
Another option for those without 35 qualifying years might be to work for an extra year or two.
Certain people qualify for NI credits that count towards their State Pension, but may not be claiming their full entitlement. Here are some situations that might qualify you:
- Claiming Child Benefit (for kids under 12)
- Carer’s Allowance (caring for 35+ hours a week)
- Jobseeker’s Allowance or Universal Credit (if eligible)
- Statutory Sick Pay (SSP) or Maternity Allowance
- Armed Forces or certain self-employed workers
If you have missed credits in the past, it may be possible to apply for backdated NI credits.
The State Pension and tax planning
Remember, your State Pension income is classed as “earnings” for tax purposes. For some people, claiming this income could increase their tax liability. So, plan carefully.
For instance, suppose someone earns £45,000 per year from their job and continues working after they claim their full new State Pension. From 6 April 2025, this will add another £11,973 to their earnings, pushing them over the higher rate threshold for income tax (40% on income between £50,271 to £125,140).
For this person, depending on their financial goals and strategy, it might make sense to defer their State Pension until they fully retire. Or, they might be comfortable paying the extra income tax for a year or two. A financial adviser can explain the issues and considerations here in more detail, helping the individual make an informed decision.
Invitation
To discuss your own State Pension and financial plan, please get in touch to arrange a free, no-commitment consultation with an adviser here in Cumbria.
Pension investments can go down as well as up. Pension access is normally at age 55 (rising to 57 in 2028). Tax benefits depend on HMRC rules which may change. Making retirement decisions without guidance is risky. Recommend consulting Pension Wise or an adviser before making pension decisions. Risk of running out of pension funds due to poor investment performance or withdrawals. Future tax rules may change pension benefits.