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If you’ve been following the financial news in May 2020, you’ll likely have noticed the headlines about the state pension triple lock. Our financial planning team here in Oxford have certainly had plenty of enquires about this. In summary, most questions were about whether the “triple lock” can be sustained following the huge increase in government spending from March 2020.
In this article, we will be examining the likelihood of this change and the possible implications. We hope you find value in this content. Get in touch to join our mailing list for the latest updates, or request a free consultation if you’d like to discuss your own retirement planning needs with a member of our team: 01869 331469.
The triple lock & COVID-19
For those unfamiliar with the triple lock system, it was introduced in 2010-11 to ensure that state pension payments rose by 2.5% per year to keep up with the rising cost of living. In 2020-21, for instance, the new full state pension rose to £175.20 per week – up from £168.60 in the prior financial year. However, there are noises from the government that they could announce a suspension or abolition in the triple lock.
The reasoning behind this speculation appears to be linked directly to COVID-19. The March 2020 budget to combat the pandemic announced £30bn in extra spending (added to £18bn of other spending pledges). This has been called the biggest budget “giveaway” since 1992, and is estimated to add another £100bn in public debt over the next four years. As such, the government is now looking for ways to save money and bring stability to the economy. Stopping the “rising cost” of the triple lock could save £8bn a year and £20bn over five years; hence its focus at this time.
Likelihood & financial planning implications
This is obviously concerning to those currently relying on their state pension for an income in retirement, or those who plans depend on it. Whilst our Oxford financial planning team cannot predict the future, it is worth noting that the Conservatives tried to abolish the triple lock ahead of the 2017 general election, but changed course to secure power with the Democratic Unionist Party (DUP). This time, the government has an 80-seat majority and strong incentive to rein in areas of public spending. Time will tell, of course, whether or not the triple lock will be axed in 2020.
The possible implications for financial planning are what concern us here. It’s worth noting that, had the triple lock not been established in 2010, then pensioners today would be getting about £10 less per week (i.e. £525 per year). As such, if the triple lock is indeed suspended or axed, then it will be necessary for many people to revisit their financial plan. For some already in retirement, they might need to accept a slightly lower income each year. Others yet to reach State Pension Age might need to increase their workplace or personal pension contributions to try and make up for some of the shortfalls. Indeed, in certain cases this might mean reassessing your planned date of retirement, to give more time to build up your pot and national insurance record. However, here at WMM, we aim to help you find realistic ways to achieve your retirement goals. Do get in touch if you are in Oxfordshire and are concerned.
If you are interested in starting a conversation about your own financial plan, then we’d love to hear from you. Get in touch today to arrange a free, no-commitment consultation with a member of our friendly team here at WMM.
Call us on : 01869 331469