Supporting people and businesses during the coronavirus pandemic comes at a cost – a huge cost. It will have to be repaid, but what will be affected? Some people ask is the pension triple-lock at risk.
The state pension has enjoyed protection against inflation since 2010, a measure introduced by the then Conservative-Liberal Democrat coalition government.
What is the triple lock?
The “lock” ensures that UK state pensions increase each year by at least 2.5%, which in recent times has worked well for those enjoying retirement.
This works by measuring against inflation and average earnings. State pensions rise by whichever is higher, with 2.5% as a minimum.
In the current climate, with inflation low and interest rates even lower, the reality is that pensioners’ state incomes will rise faster than most working age incomes.
The triple lock was put in place to make sure that pensioners’ income never fell behind again, as many believed that previous decades had seen their income reduce unfairly considering they had contributed to the system for many years.
The UK chancellor now faces a dilemma. How can he keep the British economy on track but claw back around £300bn given out during the peak of the pandemic?
Cutbacks without austerity
The debate centres around who should pay for the financial support that has been provided since March. Organisations, charities and the self-employed have all been affected in different ways, some supported through the crisis more than others.
Leaked documents (reported in the press, such as What Investment) suggested that the UK treasury had identified the triple lock as one way the chancellor could pay for the coronavirus support given out in the first half of 2020.
While many families have struggled during the crisis, some believe that allowing state pensions to continue rising is additionally unfair on those who will end up paying the bill.
Moreover, ending the triple lock could save around £8bn each year. While this is a drop in the ocean compared to the total paid out, it avoids making cuts in other areas.
The last thing anyone wants is a return to the harsh austerity years. If anything, additional investment is required to prevent an already wounded economy receding further.
Any spare funds are more likely to be targeted at those who will help to rebuild businesses, create jobs and spend.
Younger people are more likely to invest, start companies, have families and generally contribute more in the longer term to the UK economy. Cynically, as far as politicians are concerned, they are also the voters in the next elections.
Take advice if you are approaching retirement
While there is doubt about the future level of state pension increases, anyone who is approaching retirement should make sure that any additional private funds are effectively managed.
Understanding what you have now, what you will need and when can help to formulate the right decisions for your personal circumstances.
Logic Wealth Planning offers independent financial advice whatever stage of life you are at. The sooner you act, the sooner you and your family can enjoy peace of mind.
In the first instance, please call us on 0808 1234 321 or email firstname.lastname@example.org to arrange a convenient time to chat.
Please be aware the value of investments or income from them can fall as well as rise. We are here to help you make informed decisions as you put important things in place for you and your family.
* Logic Wealth Planning provides independent financial advice in Manchester, Bury, Rochdale, Cheshire, and the surrounding area, but not limited to the region.