State pension to rise by 2.9%

This marks a 2.9%, or £174.20 a year, increase and is in line with the 'triple lock' safeguards ensuring that the state pension increases by at least 2.5% per year.

George Osborne said:

"That’s the biggest real terms increase to the basic State Pension in 15 years.

"Taking all of our increases together, over the last 5 years, pensioners will be £1,125 better off a year than they were when we came to office.

"We’re also undertaking the biggest change in the state pension for forty years to make it simpler and fairer, by introducing the new single tier pension for new pensioners from April next year.

"I am today setting the full rate for our new state pension at £155.65.

"That’s higher than the current means-tested benefit for the lowest income pensioners in our society – and another example of progressive government in action."

Kate Smith, Regulatory Strategy Manager at Aegon, said:

“There are two health warnings to the announcements, firstly a large percentage of people retiring from April will not receive the full £155.65 due to a lengthy transition to the new system. Secondly, people need to be realistic about the standard of living the state pension will deliver. It works out at just over £8,000 a year which will cover basic living costs but people need to ensure they have sufficient savings on top of this.”

Richard Priestley, Executive Director of Retirement Income at Canada Life, commented:

“The move by the Chancellor will protect the incomes of pensioners, helping cement the rapid income gains they have enjoyed of late. In the last twenty years, retired households have seen their incomes climb to record highs, up by 77% in real terms. This has far outstripped growth seen by the rest of the population. The state pension alone makes up two fifths of a typical household’s income, so this latest move is a boost pensioners will certainly enjoy.

“For those generations coming along behind, the picture may not be so rosy as they face more of an uphill battle to fund retirement. Defined benefit pension schemes which provided a guaranteed income linked to salary will gradually disappear altogether. This means savers will have to take more responsibility for their own retirement, though the government is capping the amount they are allowed to build up in their pension funds. Prospective retirees must consider long-term saving early enough in their careers to ensure their standards of living match those of the current retired generation.”