In the light of the UK’s high inflation, Stoke-on-Trent independent financial adviser, Becky Hammonds of Willow Financial Solutions, looks at ways retirees can protect their pensions.
Inflation is at its highest level for 40 years and pensioners may well be amongst the hardest hit, but they have just been promised a rise of 10.1% in April 2023/24 when the State Pension Triple Lock is reinstated.
The State Pension had previously been protected against inflation by the ‘triple lock’ – which means pension income will increase by the higher of inflation – earnings growth or 2.5%. However, in 2021 the Government suspended this rule.
Now, in a massive boost to pensioners, the government confirmed in its recent Autumn statement, that the state pension and pension credit will rise in line with inflation in April 2023 by an increase of 10.1 percent.
How does the triple lock work?
The triple lock promises an increase in the state pension by whichever is highest – earnings growth, consumer price inflation growth, or 2.5 percent a year. That’s good news for retirees on the state pension front.
How can you optimise your personal pension?
When it comes to your personal pension, those with a personal pension can choose to swap some or all of their pension for an annuity that provides a secure income for the rest of their life.
When choosing an annuity, they can select to increase their income by either a fixed percentage or by linking it to the RPI. However, a pension pot needs to have enough saved to provide for this. Also, choosing one of these options means their starting income will usually be lower but better protected against inflation.
Generally, when pension savers reach retirement, they are offered the opportunity to convert their pension pot into an annuity. Their insurer will write to them with a quote but each individual has the right to reject this offer and search the market for a better annuity rate. This is called the open market option.
Annuity rates plummeted several years ago, but they have rallied recently and are a way of securing a retirement income for the rest of a pensioner’s life.
It is essential for people not only to shop around for the best rate but also, if applicable, to take advantage of the enhanced annuities that are offered to people with medical conditions which may shorten their lives.
An independent financial adviser is best placed to evaluate each individual situation. For more information contact Becky Hammonds on 07969 269677 or email becky@willowfs.co.uk
