State pension: decision to scrap triple lock could push older people into poverty after UK inflation rise
This week, Government MPs refused to accept an amendment from the House of Lords to retain the ‘triple lock’ commitment they made to guarantee money paid in state pensions rises fairly and appropriately.
The ‘triple lock’ is a formula which was introduced by the Conservative/Liberal Democrat coalition government in 2010 to guarantee pensioners’ incomes rise by either: September’s rate of inflation, earnings growth, or a guaranteed minimum of 2.5% – whichever is larger.
Millions of retirees will now be financially affected by this decision, and elderly campaigners are warning many pensioners face sliding into financial hardship as a result. Baroness Ros Altmann, who has fought to overturn the Government’s move to temporarily scrap the triple lock, said “It will continue to become clear that the shameful decision to increase their state pensions by just 3.1 per cent next year will plunge more elderly people into poverty’.
What happens now?
The promise the government made is now being receded. This means the state pension will rise by 3.1% next April, rather than 8%, as the government starts to water down its financial commitment to pensioners.
In 2022 the state pension will go up by the rate of inflation in the 12 months to September this year – 3.1%. But inflation is soaring and could hit 4 – 5% by the end of 2021, leading to worries this will erode the state pension if it continues.
This means that, although the amount of state pension income will rise, it will not be by enough to keep up with the cost of living. With fuel and food costs rising, pensioners will be worse off financially in real spending terms.
I am in retirement, what should I do?
If you are already drawing your pension income there is very little you can do, apart from try to budget for the rising costs now. Acknowledging that your pension is not going to stretch as far as it has in the past is the first step to being prepared.
If you have other savings and investments it is important to review how and where you hold this money to see if it can work harder for you. If you are paying tax on interest then small changes, like moving your savings or investments into a tax efficient ISA may be a good idea.
I am approaching retirement, what should I do?
If you are not yet in retirement and still saving then the key is to save smarter and harder into your personal pension and other savings plans.
Preparation is key to a happy retirement, and ensuring your money is invested correctly is important. Some older pension plans carry high charges and fees, and asking a financial adviser to review existing schemes may provide the opportunity to move into a more modern cost efficient pension plan. A review can also give you the chance to get a projected retirement income from your accumulation of pension pots, giving you an estimate of how much income your personal pensions will provide when you retire.
If you have had periods of time when you haven’t worked, or when you have been out of the country, then it may be that you have missed state pension contributions which you can back date and pay. You can check your national insurance contributions through a link on the Government website site.
One of the easiest ways to secure your financial retirement can be to clear outstanding loans and debts. Overpaying your mortgage and working towards paying off credit cards and personal loans is essential the closer you get to your chosen retirement age.
Planning financially for the future
If you would like to find out more about reviewing your retirement savings plans or about how to take start taking your income in retirement, then our independent financial advisers are here to help. Call Furnley House on 0116 269 6311 or email email@example.com.
Past performance is not a reliable indicator of future performance.
The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.