The increase will kick in next April, but many pensioners will face numerous financial blows before then that could more than eradicate any benefit.
The full State Pension is expected to rise to around £12,000 in April 2025, according to a new report.
The BBC said it has seen internal calculations from the Treasury, effectively confirming a pay hike of more than £400 for those receiving the full New State Pension.
Those on the old Basic State Pension will see a more moderate increase of around £300, it was claimed.
Learn more about how the State Pension increase is calculated here
While any increase is obviously welcome news for retired households, there are actually many more reasons for them to be downbeat.
1. Rise is smaller than previously predicted
If the top increase does indeed prove to be more than £400, that would represent a downgrade on previous estimates.
As we mentioned here, there were numerous reports in August that the increase could be worth more than £500 a year to pensioners.
2. Winter Fuel Payment withdrawal
The Government has announced it will be scrapping the Winter Fuel Payments for millions of retired households this winter.
This payment could be worth up to £300, depending on your circumstances.
Losing that help would take a massive chunk out of the impending pay rise for those in receipt of the New State Pension, and wipe it out almost entirely for those on the Old State Pension.
3. Annual energy bills rising £149
Energy bills are set to rise by 10% this October – just as our gas and electricity usage increases.
Ofgem confirmed the increase to the Energy Price Cap last week, which is expected to add £149 to the typical household’s annual energy bills.
There's also a further, more moderate, increase expected in January.
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4. Cost of Living Payments scrapped
There is another blow coming for the more than one million people who receive Pension Credit.
As Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, explains: “Those on Pension Credit will be wrestling with the fact they won’t be receiving a Cost of Living payment this November.
“Last year they had a £300 payment to help take some of the pain out of winter energy bills, so losing this will take a toll.”
5. Many retirees will pay tax on their increase
What’s more, many retirees will also lose a chunk of their State Pension pay rise to the taxman.
You can read more about the ‘retirement tax’ and how to avoid it here, but in a nutshell, more and more pensioners are having to pay Income Tax each year as a result of the ongoing freeze on the tax-free Personal Allowance.
6. More bad news in the Budget?
As if the above wasn’t concerning enough, it’s possible there could be even more bad news in the chancellor’s Budget next month.
“As we head towards the Autumn Budget, rumours have also surfaced suggesting that the Government might look to means-test the State Pension in a bid to save money,” explains Morrissey.
“The rumours will cause an enormous amount of worry, because the State Pension forms a vital part of pensioner incomes.”