The triple lock guarantees the state pension rises each year by whichever is the biggest out of average earnings growth, the rate of inflation, or 2.5%.
This means the state pension will rise in line with earnings growth to 4.1% from tomorrow (1 April).
The increase represents a boost for the new state pension from £221.20 to £230.30 per week. For those who reached the state pension age before 6 April 2016, there will be an increase from £169.50 to £176.45 per week.
The increase means the new state pension will be worth £11,975.60 per year – a rise of £473 on its current level.
However, state pension increases can be a mixed blessing for pensioners, pushing many into a tax-paying bracket for the first time or into a higher tax band.
Clare Moffat, pensions expert at Royal London, said: “Royal London research found that 21 million people aged 21-65 are unaware that the state pension is taxable, so it could come as a shock to many. Pensioners receiving additional income from private or workplace pensions will see a reduction in their monthly income payments due to tax deductions.
“Defined contribution pension holders could minimise the tax impact by adjusting their drawdown income, while defined benefit scheme members will likely face increased taxable income as the amount they receive isn’t flexible and cannot be altered. However, while it’s worth remembering that nearly half of pensioners don’t receive the full state pension, there are currently people who only receive the state pension and already pay tax on it. That’s normally because they’ve delayed taking their state pension or have larger amounts of additional state pension. These people will likely have an increased tax bill.
“To manage tax liabilities, pensioners could consider taking smaller, regular payments from ISAs, which are tax-free to top up their income. Strategic planning, through financial advice, on how best to withdraw pension funds would help reduce the overall tax burden.”
