The change to the state pension triple lock for the 2022/23 tax year has meant that the public’s confidence in the Government’s pension policy has taken a hit. Many people are now wondering if further, more permanent pension changes could be on the horizon.
Richard Eagling, Senior Pensions Expert at NerdWallet said: “The triple lock is an expensive commitment for any Government to carry but it has enjoyed strong public support since it was introduced in 2011.
“Fear of voter reprisals has left the Government wary of altering the triple lock to try to rein in such liabilities, and these concerns are not unfounded. Suspending the triple lock has undermined confidence in the Government’s pension policy and left many questioning whether more permanent changes could be on the cards.
“A significant number of individuals are coming to the conclusion not to overly rely on what the state pension might deliver and are now looking to step up their own pension provision to increase their chances of enjoying a decent income in retirement.”
More than half of pension-aged Britons have said that they are less trusting of the Government following the decision to suspend the state pension triple lock for next year.
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The survey by NerdWallet of 2,000 UK adults found the recent decision to suspend the triple lock on state pensions has eroded public confidence in the Government’s pension policy, particularly among the over 65s.
In September 2021 the Government announced the triple lock would be suspended for one year, meaning that the next increase in the state pension – which will come into effect from April 2022 – will now be determined by the higher of either the CPI inflation rate or 2.5 percent, with the potential link to average earnings temporarily removed.
Some 36 percent of respondents said that the Government’s decision to suspend the triple lock has made them less trustful of Government pension policy, a figure that rises to 52 percent among those aged 65 and over.
Back in July, the Office for Budget Responsibility suggested that an eight percent uprating from the triple lock as a result of the post-lockdown surge in wages would add around £3bn a year beyond what had been anticipated to the Government’s spend on the state pension.
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But despite the economic case for making the move, support for the suspension of the triple lock is low with just a quarter (25 percent) of respondents agreeing with it. Support was highest amongst the youngest 18-24 age group (40 percent) and lowest among those aged 45 to 54 years old (19 percent).
Overall, more than a third of respondents (35 percent) said suspending the triple lock on state pension has left them worried about the impact it will have on their future retirement income.
On a more positive note, the suspension of the triple lock could encourage individuals to make greater personal provision for their own retirement rather than relying on the state pension.
A total of 19 percent of respondents said that they were likely to make greater private pension provision through their workplace pension or personal pension as a consequence, with almost half of those aged 18 to 24 years old looking to take positive action.
With the average earnings growth element now temporarily removed from the triple lock calculation, the policy has effectively become a ‘double lock’ for next year, as the value of state pension will increase by either inflation or 2.5 percent, whichever is higher.
It is expected that inflation will come in higher than 2.5 percent when the all-important figure is revealed this month, and will therefore be the number used to dictate the increase in state pension for the 2022/23 tax year.
Inflation was 3.2 percent for the year to September, with some analysts predicting that it could rise to as much as four percent for the year to October, which is the figure that will be ultimately used to boost retirees’ state pension, providing it does in fact come in higher than 2.5 percent.
The rate of inflation for the year to August had been two percent, with the 1.2 percent jump between August and September the sharpest increase on record. However, even if inflation does reach four percent, that would still be only half the increase that pensioners were potentially expecting.
Analysis from Just Group found that the state pension is not enough for retirees to live on, failing to cover the average pensioner’s spending for a third of the year. The full state pension is currently £179.60 per week.
That equates to an income of £9,339.20 each year, and the full basic state pension is worth even less. It is just £137.60 each week, which would provide pensioners with only £7,155.20 to live on every year.
Research found that the average pensioner spends £13,842 per year, leaving those who receive the full state pension £4,502 short and people on the full basic state pension £6,687 short. Based on this, even if state pension was increased by eight percent next year, the average would still not have enough.
The average single pensioner would still be £3,500 short of a sufficient income if state pension had increased by eight percent, highlighting the need for Britons to make a concerted effort to save towards their personal pension pot.