The Triple Lock trip up, take two

State pension increases and the Triple Lock is back in the spotlight.

10/08/2021
pension-overview

About a year ago, during the first wave of the pandemic, several think tanks started to look at the potential repercussions of the then crumbling economy on state pensions. Their particular focus was on the ‘Triple Lock’, which applies only to payments made under the old basic state pension and its replacement, the new state pension.

As a reminder, the Triple Lock means that these two state pensions increase in April by the greater of one of three measures:

  • Yearly CPI inflation to the previous September;
  • Average weekly earnings growth measured over three months to the previous July; and
  • 2.5%.

At the time, the economists’ best guess was that the hit to earnings caused by Covid-19 in 2020 would be followed by a V-shaped recovery in the following year. The result that concerned the think tanks was that:

  • In April 2021, the Triple Lock would mean state pensions rose by 2.5%, sidestepping a fall in earnings and minimal inflation; and then
  • In April 2022, the recovery in earnings would mean that under the Triple Lock, state pensions growth matched earnings growth, well above 2.5% or inflation.

Speculation suggested that the Chancellor would have to act to limit the cost to the Exchequer, despite a 2019 Conservative manifesto pledge to retain the Triple Lock. In the event, the only action the government took was a tweaking of legislation to ensure the Triple Lock would continue to operate for the 2021 increase.

As we near the time when the 2022 increases are published, the number crunchers have returned to their spreadsheets. With the benefit of more hard data, some are now estimating that an unaltered Triple Lock could deliver an 8% rise next April, costing the Chancellor £4 billion.

This subject is certain to gain more attention once summer ends and pre-Budget rumours take off. However, even if an 8% rise does come to pass, the new state pension will still be less than £200 a week. So, you will still need to keep making your own pension contributions…       

The value of your investment and the income from it. can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice. 

Important information:

This document is marketing material. This document is provided by the author and may not necessarily represent views expressed in other Aspect8 communications, strategies or funds. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested. Exchange rate changes may cause the value of any overseas investments to rise or fall. The sectors, securities, regions and countries shown above are for illustrative purposes only and are not to be considered a recommendation to buy or sell. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Aspect8 does not warrant its completeness or accuracy. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Aspect8 has to its customers under any regulatory system. Regions/sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. This content is issued by Aspect8 Limited, Holmwood House, Broadlands Business Campus, Langhurstwood Road, Horsham, West Sussex, RH12 4QP. Registered No. 07572431. Authorised and regulated by the Financial Conduct Authority, FCA no. 227247.

Topics

Benchmark Financial Planning is an Appointed Representative of Best Practice IFA Group Limited which is authorised and regulated by the Financial Conduct Authority, the registration number is 223112. Registered office: Broadlands Business Campus, Langhurst Wood Road, Horsham, West Sussex, RH12 4QP. Registered in England and Wales No 07572431.

The Financial Ombudsman Service is available to sort out individual complaints that clients and financial services businesses aren't able to resolve themselves. To contact the Financial Ombudsman Service, please visit www.financial-ombudsman.org.uk

The guidance and/or advice contained within this website are subject to the UK regulatory regime and are therefore targeted at consumers based in the UK.