State pension set to rise by 4% in line with wage increases

• Pensioners face £3,000+ gap between the state pension and basic retirement income in April 2025, new calculations by interactive investor find
• Two-fifths of over-55-year-olds (39%) have less than £50,000 in their pension pot, according to ii’s Show Me My Money 2023 report.

New calculations by interactive investor, the UK’s second-largest DIY investment platform, show that the new state pension is set to fall over £3,000 short of the amount needed for a minimum standard of living at retirement.

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The triple-lock pension pledge indicates that the state pension should rise by 4% to around £460 in April, in line with the average earnings figures. This would take the full state pension for men born after 1951 and women born after 1953 to £11,962 in the 2025-26 tax year. 

This is £2,895 below the £14,857 (before tax) needed for a minimum standard of living, as defined by the Pensions and Lifetime Savings Association (PLSA), rising to £3,075 assuming a 2% rise to account for inflation (£15,037 before tax).

Findings from interactive investor’s Show Me My Money 2023 report expose a looming national pension emergency, with most people not saving enough into their pensions to secure a comfortable living standard in retirement. 

The research, conducted by Opinium among 2,000 UK adults, found that almost two-fifths of over-55-year-olds (39%) have less than £50,000 in their pension pot.

Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “It is all but confirmed that the state pension will rise in line with average earnings, as the headline inflation figure for September is not expected to come in higher. 

“While the £460 increase in the state pension may seem like a welcome boost on the surface, many pensioners won’t feel any richer thanks to the double whammy of inflation, which continues to erode the real value of any pension increment, and the loss of the £300 Winter Fuel Payment, which is now means-tested.

“Our calculations offer a stark reminder that while the state pension is a vital component of retirement income, it falls short of covering even the minimum income needed to enjoy a comfortable retirement. Worryingly, our research has exposed a looming national pension emergency, with people at the crunch stage of their retirement planning not saving enough into their pensions to secure a comfortable living standard in retirement.

“Building and maintaining a private pension and a sensible strategy is crucial at the best of times, but it is all the more important in today’s financial landscape, amid rumours that the government might seek to dilute state pension benefits to save on costs.

“The onus is increasingly falling on us to build and maintain a retirement nest egg separate from the state pension to bridge this gap and ensure that we don’t just survive, but thrive in retirement.”