How are federal retirement and benefits affected by 2025 GS base pay changes?
Executive summary
The 2025 GS base pay increase finalized at about a 1.7% across‑the‑board raise (with locality additions bringing the average to roughly 2.0–2.06% in most accounts) raises immediate paychecks and modestly lifts retirement calculations that use salary as the base — notably the FERS “high‑3” pension average, Thrift Savings Plan (TSP) contributions, and future COLA baselines [1] [2] [3]. Locality pay remains material: some localities (e.g., Washington DC area cited at ~33.94% in one summary) produce much larger total pay and therefore larger retirement baselines [4] [3].
1. What changed in 2025: a small, across‑the‑board bump that compounds
The Office of Personnel Management and multiple federal‑employee analyses report that 2025 GS base pay rose by 1.7% with locality adjustments making the average increase about 2.0–2.06% once locality is included [1] [3] [2]. Independent guides and benefit advisors repeat similar numbers and note OPM’s finalized pay tables for 2025 reflect that base increase [1] [2].
2. How that raise flows into pensions: the “high‑3” and FERS math
Pension calculations for FERS depend on your “high‑3” average pay (the highest‑paid consecutive 36 months). Any permanent, across‑the‑board base increase increases that high‑3 average for employees who include months affected by the raise, thereby increasing annuities and future COLA bases. Multiple advisories explain that even a modest 1.7% base rise can meaningfully change lifetime pension totals because it compounds through the high‑3 and subsequent COLA calculations [5] [2].
3. Locality pay’s outsized and uneven effect
Locality pay is added to GS base pay to reflect regional labor markets and is included in many retirement calculations. That means an identical base increase yields different dollar increases by locality: a 1.7% base bump in a high‑locality area (one guide lists Washington DC locality at ~33.94%) produces a larger absolute change to annual pay and to high‑3 averages than in a low‑locality area [4] [3]. Sources note no new localities were added for 2025, so differences persist by geography [3].
4. TSP contributions, FICA, and take‑home pay effects
Higher base pay raises mandatory and elective contributions that are percentage‑based: Thrift Savings Plan contributions (employee percentage and agency matching thresholds) and FICA/Medicare taxes move up as pay increases, so retirement savings and payroll tax outlays rise proportionally. Advisory pieces explicitly tie the 2025 raise to larger TSP payroll flows and to the long‑term value of saving more while wages are higher [5] [6].
5. Retiree impacts and COLA linkages
Articles explaining the 2025 raise emphasize that retired pay and future COLAs are indirectly affected because COLAs are applied to annuities and pensions that were themselves based on salary histories. A higher high‑3 before retirement generally produces a higher starting annuity, which in turn yields larger annual COLA dollar increases [5].
6. Magnitude: modest percentage, non‑trivial dollar outcomes over career spans
Multiple sources characterize 2025’s raise as modest — roughly 1.7% base and ~0.3% locality on average — but stress that even these small percentage moves can add thousands over long careers and increase lifetime retirement benefits when compounded and paired with employer matching in the TSP [1] [3] [2].
7. Policy uncertainty and next steps (2026 and beyond)
Several outlets note policy proposals and potential changes for 2026 (for example, proposals to freeze locality pay or apply a different base raise), indicating benefits effects can shift year to year; OPM typically publishes tables each December and any future presidential or congressional actions could alter rates [7] [8]. Users are advised to monitor OPM releases and agency HR guidance for specific impacts [9].
Limitations and final context: available sources consistently report the 2025 base raise at ~1.7% with locality yielding an average near 2.0%, and they explain how that increase feeds into high‑3, TSP, and COLA mechanics [1] [3] [2]. Sources do not provide individualized calculators here; for a precise dollar impact on your pension or TSP trajectory, consult OPM tables or a federal benefits advisor as recommended by these trade sources [5] [3].