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Daily Record
Daily Record
Lifestyle
Linda Howard

Future of State Pension Triple Lock rule is 'difficult decision’ for UK Government, warns money expert

The cost of living crisis is set to continue into 2023 making it important for everyone nearing retirement age, or those already drawing their State Pension, to understand the implications of changes that could affect savings, pensions and investments.

Inflation may have passed its peak of 11.1% in late 2022, but just because it may be lower in future does not necessarily mean that prices will return to where they were. It simply means they will just be rising more slowly.

Steven Cameron, Pensions Director at Aegon, warns that the UK Government has a “difficult decision” to make over the future sustainability of the State Pension Triple Lock following the upcoming 10.1% April uprating. He also speculates that the State Pension age could go up to 68 a decade earlier than planned, affecting retirement plans for millions of workers.

State Pension Triple Lock

The State Pension Triple Lock, the guarantee which increases State Pensions by the highest of Consumer Price Inflation (CPI), earnings increases or 2.5% each year, is being honoured in April.

This will mean a record breaking increase of 10.1% to the State Pension which is good news for State Pensioners whose 3.1% increase last year fell short of inflation then.

However, the State Pension is paid for by those of working age through their National Insurance Contributions and the 2023 increase comes with a very high price tag.

Steven explained: “There’s a big question over whether the Triple Lock can be sustained in future years, when both price inflation and earnings growth are high and subject to sharp changes.

“It won’t be until autumn that we’ll know what the Triple Lock formula would deliver, and the UK Government will then have a difficult decision to make.”

There is also speculation that the State Pension age could increase a decade earlier than planned. (Getty Images)

State Pension payment rates 2023/24

Full New State Pension

You are eligible for the New State Pension if you are:

  • a man born on or after April 6, 1951
  • a woman born on or after April 6, 1953

New State Pension payment rates

  • Weekly rate: £203.85, an increase of £18.70 from £185.15
  • Four-weekly rate: £815.40, an increase of £74.80 from £740.60

Basic State Pension (Category A or B)

You are eligible for the Basic State Pension if you are:

  • a man born before April 6, 1951
  • a woman born before April 6, 1953

Basic State Pension payment rates

  • Weekly rate: £156.20, an increase of £14.35 from £141.85
  • Four-weekly rate: £624.80, an increase of £57.40 from £567.40

Widow’s Pension

  • Standard rate: £139.10 (from £126.35)

Future State Pension age changes

As well as uncertainty over future increases to the State Pension, the UK Government is set to publish its review over the age at which people can officially retire and draw their State Pension.

The State Pension age is now 66 and two further increases are currently set out in legislation.

These are:

  • a gradual rise to 67 for those born on or after April 5, 1960
  • a gradual rise to 68 between 2044 and 2046 for those born on or after April 5, 1977

However, there is speculation this could go up to 68 a decade earlier than planned, possibly from the early to mid-2030s.

Steven said: “The State Pension is a significant part of most people’s retirement income so it’s important to understand when you’ll receive it so you can plan ahead to make sure you have adequate private or workplace pensions.”

The report is expected to be published in May.

Freezing the income tax thresholds

With inflation particularly high, and pay increases for many also higher than in recent times, the freezing of income tax thresholds again in April will mean more people find a wage increase takes them into a higher rate tax band.

However Steven explained that if you can afford to, one way to avoid this is to pay more into your pension.

He said: “Personal contributions to pensions are deducted from your earnings before you’re assessed for income tax.”

Essentially this means making a higher contribution to your workplace pension which would then bring your earnings under the higher income tax threshold, resulting in higher take home pay over the year.

Cash savings and shares investments

Many people think about using their ISA allowance either before the end of the current tax year on April 5 or once we’re into the new tax year on April 6.

There are two main types of ISA - cash or stocks and shares.

Currently, cash ISAs are paying interest well below the rate of inflation which means savers are losing value in real ‘after inflation’ terms.

Investing in a stocks and shares ISA is more likely to deliver ‘real’ growth above inflation over the longer term, but there is no guarantee and there’s also a risk they can go down in value as well as up.

Steven explained: “Those considering their options and with an investment horizon of five or more years will want to see what happens with interest rates on savings accounts including cash ISAs, how the rate of inflation changes and also how volatile the stock market is.

“One option is to consider paying regular contributions into a stocks and shares ISA rather than a lump sum which can ‘even out’ investment volatility.”

To keep up to date with the latest State Pension news, join our Money Saving Scotland Facebook page here, or subscribe to our newsletter which goes out four times each week - sign up here.

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