Are you on the State Pension? Or soon to retire? Then you probably want to know what the new State Pension is for this year.
First, the good news. The full State Pension is 3.1% higher this year than it was last year – hooray!
Now for the less good news. Technically, it should have gone up by a lot more, according to a commitment the government made called the triple lock. But the government tightened their purse strings and decided to scale back on State Pension increases this year. Doh!
Don’t worry, we’ll break it all down below. But first…
What is the State Pension for 2022/23?
For the year 2022/23, the full new State Pension is £185.15 per week. That comes to £9,628 per year. That’s right, if you qualify for the full State Pension, that means the government will give you £185.15 every week once you hit State Pension age (currently 66, but gradually climbing to 68).
We know, we know, it’s not a huge amount. But you can claim it on top of other forms of income – like other pensions. So, even if it’s not enough for you to live on by itself, it’s a nice start!
If you’re a man born before 6th April 1951, or a woman born before 6th April 1953, you’ll get something slightly different, called the basic State Pension. The full basic state pension for 2022/23 is £141.85 per week, which comes to £7,376.20 per year.
Either way, just bear in mind that exactly how much State Pension you’ll get will depend on how many years you’ve paid National Insurance (that’s a payment you make to the government alongside your taxes). To qualify for the full State Pension, you need to have paid enough National Insurance for at least 35 years. But to get any State Pension at all, you need to have paid enough National Insurance for at least 10 years.
Now, most people will have to pay National Insurance through their pay cheque, so if you’ve worked most of your life, chances are you’ll qualify for the State Pension no problem. However, if you earn very little, you might be able to get away without paying National Insurance. That might sound great until you realise it could stop you from qualifying for the State Pension. Eek!
Don’t worry, there is a way around it! If you can afford to, you can make voluntary National Insurance contributions. Okay, okay, nobody likes paying for things they don’t have to. But it could be worth it to unlock that lovely State Pension later on in life – your older self will thank you for it!
How much has the State Pension increased by?
The State Pension for 2022/23 is 3.1% higher than it was last year. In 2021/22, the full new State Pension was just £179.60 per week, or £9,339 per year. Meanwhile, the full basic State Pension was just £137.60 a week, or £7,155.20 per year.
That means people who qualify for the full new State Pension will get over £300 per year more now than they would have done before. And people who get the full basic State Pension will get over £200 per year more.
Now, you might think an extra few hundred pounds a year sounds pretty good. And we can see why! However, without wanting to burst your bubble, it could have been even more.
Let us explain.
Normally, the State Pension goes up based on a system called the triple lock. The triple lock is a commitment the government made in 2010. They promised that every year, the State Pension would go up in line with whichever is highest out of:
- The rate of inflation (inflation refers to how products and services in a market get more expensive over time)
- Average growth of earnings
This year, the highest of those three things was the average growth of earnings. According to the Office for National Statistics, wages skyrocketed by a whopping 8% in May to July 2021 – those are the months used to calculate the State Pension rise. So, the rules of the triple lock should have seen the State Pension go up by 8% too!
However, the government was reluctant to increase the State Pension by that much (we know, stingy!). So, they decided to suspend the triple lock system this year. Urgh!
Instead, they went off the next highest thing when calculating the State Pension rise – the rate of inflation. Hence why we ended up with a 3.1% increase. While it looks nice at first glance, it’s pretty measly compared to the nice 8% increase we could have had, isn’t it?!
Why was the triple lock suspended?
You’re probably tired of hearing the word ‘Coronavirus’ but we’re going to have to bring it up anyway (sorry!). The pandemic has wreaked havoc in all sorts of ways – including by skewing wages massively since it hit the UK in 2020.
To start with, lots of businesses closed or scaled back, which meant loads of people lost their jobs or ended up on furlough (in case you don’t remember, furlough was that government scheme that gave workers 80% of their usual wages if there was no work for them to do, to stop them from losing their jobs).
Then, on the other side of lockdowns, businesses started opening again. This meant there was suddenly a big spike in how much people were earning. Between May and July 2021 (the months that the government used to calculate the State Pension increase) wages went up by a massive 8%!
The triple lock commitment should have meant that the State Pension was increased by 8% inline with the rise in wages. But at this point, the government had already forked out a lot of cash thanks to the pandemic. And we mean a LOT! In 2020/21, they spent around £167 billion more than they were planning to before the pandemic hit, according to the House of Commons Library.
This meant there was a lot of worry about increasing the State Pension by so much. So, in the end, the government decided to suspend the triple lock for a year while the UK got back on its feet. Instead, they put the State Pension up in line with the rate of inflation, and we ended up with an increase of 3.1%.
Are there any other State Pension changes for 2022/23?
That depends! Do you live in Australia, Canada or New Zealand?
If so, sorry to be the bearers of bad news, but as of January 2022, you can’t count time working abroad in these countries as qualifying years on your State Pension anymore. Drat!
Let’s rewind for a second. If you spent time working in any of these countries previously, you’d have been able to claim National Insurance credits. National Insurance credits mean that your National Insurance contributions can be marked as paid even if you haven’t paid them, to help stop you from missing out on the State Pension. Nice!
However, all good things must come to an end and sadly that’s all a thing of the past now. Don’t get us wrong, you can still qualify for the State Pension if you’ve worked in these countries. But it might just be a bit harder, as you’ll need to build up enough qualifying years working in the UK, without counting your time abroad.
How to boost your income when you retire
Want to make sure you can live your sunset years to the full? If you haven’t yet retired, you might think it feels like a long way off. But we promise you, it’ll come around sooner than you think. By starting to plan for retirement now, you’ll give yourself the best possible chance of living the high life when you’re old and grey.
Sound good? Here are some tips for boosting that retirement income.
1. Make voluntary National Insurance contributions
First things first, remember that not everybody gets the full State Pension of £185.15 per week (or £9,628 per year). If you have fewer than 35 qualifying years of National Insurance contributions, you could get significantly less. And if you have fewer than 10 years, you’ll end up with no State Pension at all!
If you’re looking to up your retirement income, your first port of call should be to check how many qualifying years you have on your National Insurance record. You can do this using the government’s handy State Pension forecast tool.
If it shows that you don’t have enough qualifying years to get the State Pension, don’t panic. You can normally make voluntary National Insurance contributions for the past 6 years.
If you’re a few years off qualifying for the State Pension or you’re tantalisingly close to qualifying for the full State Pension, paying a few years worth of voluntary National Insurance contributions could fill those gaps in your National Insurance record. That way, you could unlock those lovely weekly payments, which could make all the difference once you retire!
2. Find a second source of income
Remember that as wonderful as the State Pension is, even the full State Pension probably won’t be enough for you to live off by itself.
According to the Pension and Lifetime Savings Association, a single person in retirement will currently need around £10,900 a year to achieve a minimum living standard. But if you want a moderate living standard, you’ll likely need more like £20,800 a year, or £33,600 a year to achieve a comfortable one. All these figures are more than the £9,628 per year the full State Pension would give you. Gulp!
That means it’s important to have another source of income that you can use to top up your State Pension. This could be a savings account (like an ISA or a LISA), selling a home or renting out a property. It could also be another pension – you can take an income from as many pensions as you want alongside your State Pension once you retire!
If you’re an employee, the chances are you have a workplace pension already (one that your employer sets up for you). But anyone can also set up a pension themselves, known as a personal pension.
Starting a pension and paying as much into it as you can comfortably afford to throughout your working life is a really good shout. Not only will you benefit from all the money you squirrel away once you hit retirement age, but your pension provider (the company that gives you your pension) will also spend time growing your money for you so that it’s worth even more when you retire. Oh, and you won’t have to pay any tax on the earnings you put into it either, known as tax relief.
Yep, that’s right. If you have a personal pension, any tax you pay on the money you add to it will get refunded straight back into your pension pot – boosting your pension contributions by at least 20%. That means if you add £80 into your pension pot, the government will add in a £20 bonus to turn it into £100. Kerching!
If you’re a higher-rate taxpayer, it’s even better. You can get 40% tax relief for any income you’ve paid 40% tax on. And additional rate taxpayers (people who pay 45% tax on some of their income) will even get some tax relief at 45%!
If you fancy starting a pension but you’re not sure where to start, read our reviews of our favourite pension providers, PensionBee and Penfold. They have great customer service, handy mobile apps you can use to track your savings, and low fees. All you have to do is set up an account and add in as much or as little money as you want, whenever you can afford to. Sorted!