Soaring living costs continue to place retirement incomes under strain, with many people hoping that some of the changes introduced at the start of the 2024/25 tax year might help these pressures start to ease.
There are certainly some welcome changes that came into effect in April, including increases to the State Pension and Pension Credit, for example, but these may not be enough to meet eye-watering rises in energy and food bills seen in recent years, which are some of the major costs in retirement. Fortunately, though, and despite higher than expected numbers in March, inflation is expected to continue to ease over the next year, with the Office for Budget Responsibility (OBR) predicting it’ll fall to 2% by the end of 2024.
Here, we look at some of the changes that have happened to pensions this tax year, alongside other benefits you may be entitled to, and potential ways to boost your pension.
If you’re thinking about getting professional financial advice, you can find a local financial adviser on VouchedFor or Unbiased.
Alternatively, if you’re looking for somewhere to start, we’ve partnered with independent advice firm Fidelius to offer Rest Less members a free initial consultation with a qualified financial advisor. There’s no obligation, however if the adviser feels you’d benefit from paid financial advice, they’ll talk you through how that works and the charges involved.
Fidelius are rated 4.7 out of 5 from over 1,000 reviews on VouchedFor, the review site for financial advisors.
State Pension has increased
The State Pension rose by 8.5% in April 2024, in line with earnings growth. This is the second biggest percentage rise in the State Pension in the last 30 years, as it rose by 10.1% in April 2023.
The triple lock guarantee means the State Pension increases each year by the highest of September’s inflation figure, earnings growth, or 2.5%. Find out more in our article What is the pension triple lock?
From April 2024, someone on a new full State Pension has seen their payments go up from £203.85 a week in the previous tax year year to £221.20 a week now, while the old basic state pension has risen by £13.30 per week or £691.60 per year, to £169.50 a week. Read more in our article How the State Pension works.
Taxation changes
In April 2024, the Capital Gains Tax (CGT) allowance was reduced to £3,000, down from £6,000 in the 2023/24 tax year (down from £12,300 in the 2022/23 tax year). Similarly, the amount of dividend income you can earn before paying tax fell to £500 from April 2024, down from £1,000 in the previous tax year and £2,000 in 2022/23.
This makes holding your savings in a tax-efficient pension or ISA particularly important. Guy said: “With an investment portfolio of £50,000 yielding 4% dividend income, you could end up paying up to £500 dividend tax on shares held outside an ISA or SIPP, and a capital gain of £10,000 could leave you with a £1,400 tax bill, if you’re a higher rate taxpayer.”
Pension Credit has risen
Up to a million pensioners are failing to claim Pension Credit, which could provide a valuable income boost of as much as £3,000 a year. It’s vital that you claim this money if you’re eligible, as it could make a real difference if you’re struggling financially, and it could help you to qualify for other benefits too (see below).
Pension Credit is a means-tested benefit and this tax year it can increase retirement income by up to £218.15 a week if you’re a single person, or £332.95 for couples, and may be higher in some situations, such as if you’re a carer for someone. Read more in our article Pension Credit explained.
Find out more about Pension Credit and eligibility requirements in our guide Pension Credit Explained. If you think you might be eligible to claim it, you can make a claim by phone using the Pension Credit claim line on 0800 99 1234. If you’d rather make a paper application, you can request one on the above number, or you can download and print a Pension Claim form here.
You can find out if you’re eligible for Pension Credit and how much you can get using the Gov.uk Pension Credit calculator.
Lifetime Allowance abolished
The pensions Lifetime Allowance was abolished from 6 April 2024, and the tax charge for breaching the allowance hasn’t applied since April 2023. Originally, it was due to remain frozen at £1,073,100 until April 2026. Read more in our article What is the pension Lifetime Allowance and when is it being abolished?
This is good news for those who’ve saved into a pension over the course of several decades, and built up a substantial pot. They may have found they had retirement savings in excess of the Lifetime Allowance, particularly if they’ve been lucky enough to belong to a final salary (or defined benefit) pension scheme. This type of pension pays a guaranteed income at retirement, which is usually based on how many years you’ve belonged to the scheme and a proportion of your final year’s pay.
Bear in mind, however, that although lifetime allowance charges are gone, there is a £268,275 cap on the tax-free lump sum you can take from your pension.
Extra benefits
If you are in receipt of certain pension benefits you may be entitled to additional money in 2024 to help you cover living costs.
- Cold weather payments: If you are receiving low-income benefits such as Pension Credit you should be entitled to automatic payments of £25 when your local temperature sits at an average of zero degrees celsius or below for at least seven consecutive days between 1 November and 31 March each year.
- Warm homes discount: You may be able to get £150 off your electricity bill as a one-off bill reduction, which is paid directly to your energy provider each year if you receive certain means-tested benefits such as the Guarantee Credit element of Pension Credit. Find out more about what help is available towards energy bills in our article Are you eligible for help with heating costs?
- Free TV license: If you are a pensioner aged 74 or over and claiming Pension Credit you are entitled to receive a free TV licence, and a refund for any payments made while not being aware you were eligible, if that is the case.
Where to go for more help
It’s more important than ever to explore all the different ways you might be able to increase your retirement income. You can seek free guidance from the age of 50 and above from the Government’s Pension Wise service on your pension choices at retirement. You can call them on 0800 138 3944 to book a free appointment, or book one through their website.
If you’re thinking about getting professional financial advice, you can find a local financial adviser on VouchedFor or Unbiased.
Alternatively, if you’re looking for somewhere to start, we’ve partnered with independent advice firm Fidelius to offer Rest Less members a free initial consultation with a qualified financial advisor. There’s no obligation, however if the adviser feels you’d benefit from paid financial advice, they’ll talk you through how that works and the charges involved.
Fidelius are rated 4.7 out of 5 from over 1,000 reviews on VouchedFor, the review site for financial advisors.
If you’re lucky enough to have a defined benefit or final salary scheme, you’ll get a guaranteed income at retirement which can make it much easier to plan your budget. Check with your scheme’s administrator if you’re not sure when this income will start being paid. Find out more in our article Your options at retirement.
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