Independent financial adviser, Becky Hammonds of Willow Financial Solutions, looks at why the triple lock pension is under threat and how changes could affect pensioners.
Chancellor, Rishi Sunak maintained the triple lock in the last Budget – but pensioners are right to be wary of future risks as it looks likely that the Conservatives’ retirement income pledge is under threat.
The State Pension triple lock ensures the sum eligible retired Britons receive from the Department for Work and Pensions (DWP) rises each year. The state pension triple lock was introduced by the then-coalition Government in 2010 to ensure the state pension would not lose value in real terms. State pensioners can expect to see their sum rise each year by the highest of the following factors: 2.5 percent, inflation or earnings growth.
However, figures recently released by the Office of National Statistics found that average earnings rose by 7.4 per cent in the three months to June.
However, due to the coronavirus, wages data has been warped this year, with growth in average total pay – including bonuses – recorded yesterday at 8.8 percent by the Office for National Statistics (ONS)
There is a growing consensus among government ministers handling the relevant briefs that increasing state pensions by that much would be both too costly and unfair on workers.
Two options are understood to have been submitted to the Prime Minister to get around the issue, both of which would see state pensions rise by much less than the earnings rise.
One would see a two-year – rather than a one-year – average for earnings rises adopted, meaning the fall in incomes last year during lockdown is incorporated.
The second would see average earnings not included in the calculation for pensions next year, with the inflation rate – which is expected to be around three per cent – picked instead.
Both of those options would see the state pension rise by closer to three per cent than the more than seven per cent which should be due under the current arrangements.
That could save the Treasury as much as £3.5 billion, according to pension industry experts and would affect more than 12 million people who claim state pensions and take effect from April 2022 – but is likely to only be a temporary change.
For pensions and investment advice contact Becky Hammonds on 07969 269677 or email firstname.lastname@example.org