According to the Treasury, millions of pensioners can expect to see their spending power boosted to its highest level for 25 years.
Chancellor George Osborne will confirm the increase to the basic state pension to £119.30 every week from April 2016, as part of this week’s scheduled Spending Review.
The 2.9 per cent rise will be worth an extra £174.20 every year to someone on a full basic state pension. It will be the biggest increase in real terms since 2001 and, as a share of average earnings, the highest since 1991.
Pensions minister Ros Altmann said pensioners had “done their best for society, worked hard, and we owe them”.
Alongside the rise in the basic state pension, the Chancellor is likely to confirm that the starting rate for the new single-tier pension will be worth about £155.
The new payment is designed to simplify the state pension system. From April, those reaching pension age will receive the new pension. Its supporters say it will provide a firm foundation for retirement, with the large majority of people building up sufficient National Insurance contributions to become entitled.
It will be a particular boost for women – with 650,000 of them getting an average of £400 more a year in the first ten years of the reformed system. The new system will also address gender inequality in the system, bringing forward by over a decade the point when men and women will achieve equal payments.
The Treasury also said in a statement that the Government was meeting “its pledge to help to deliver security for older people as savings are made in other budgets”.
Baroness Altmann said: “Over the last quarter of a century, pensioners have fallen below the rest of society as average earnings have done so much better than the increases in the state pension.
“Since 2010, we have really begun to correct that. We are now back to the highest level for a quarter of a century – and quite right too. Pensioners deserve to be treated much better than they have been in the past and to have security in retirement.”