Triple lock intact after autumn statement
Experts have praised the Chancellor’s pledge to keep the triple lock in the autumn statement.
Broadstone’s Simon Kew is one of many pension experts who welcomed Jeremy Hunt’s move to keep the 'triple lock' in place and increase the state pension by 8.5 per cent - amounting to more than £900 a year for pensioners.
Kew, who is head of market engagement at Broadstone said the move would be music to pensioners’ ears.
He said: “For the past few months, pensioners have been on tenterhooks waiting for the chancellor to announce his decision on the triple lock uprating for next year’s State Pension.
“Confirmation in the Autumn Statement that the State Pension will increase by 8.5% will be music to their ears.
“The Chancellor has stuck to the government’s manifesto pledge and avoided the temptation of sneakily cutting the uplift to 7.8% by excluding bonuses from the wage growth figure. It means that the State Pension will rise to around £11,500 from £10,600, boosting pensioner income at a time when cost of living pressures are still squeezing household budgets.”
The triple lock increases pensions each April by whatever is highest out of average earnings rises, inflation or 2.5 per cent.
Speaking in the House of Commons, Hunt said: “The triple lock has helped lift 250,000 older people out of poverty since it was instituted in 2011 and been a lifeline for many during a period of high inflation.
'There have been reports that we would uprate it by a lower amount to smooth out the effect of high public sector bonuses in July, but that would have been particularly difficult for one million pensioners whose only income is from the state.
“So instead, we honour our commitment to the triple lock in full. From April 2024, we will increase the full new state pension by 8.5 per cent to £221.20 a week, worth up to £900 more a year. That is one of the largest ever cash increases to the state pension - showing a Conservative government will always back our pensioners.”
A loaded decision
The triple lock has been an important policy to ensure retirees’ income has kept pace with rising prices or increases in the working population's wages, according to Patrick Thomson, head of research and policy at Phoenix Insights.
He said: “Decisions around the state pension carry huge significance given the impact on a large proportion of the electorate, so any adjustment to the triple lock could have led to wider political ramifications in the lead up to the next general election.
“Polling from Phoenix Insights found people of all ages believe the state pension exists to ensure everyone has a minimum level of income in retirement and 82% of adults said it should support older people who are unable to work.”
But the move to honour the triple lock also raises further questions around its long-term affordability.
Steven Cameron, pensions director at Aegon, said: “State pensioners will be relieved that the government has honoured the state pension triple lock in full. This could deliver an increase of over double the ruling inflation rate next April.
“But this needs to be paid for out of the National Insurance contributions of today’s workers which raises concerns over intergenerational fairness and there is still a huge question mark over whether the triple lock is affordable longer term.
“We hope all political parties will set out their future policy on the triple lock in their pre-election manifestos. We believe the formula should be adjusted to look at averaging over a three-year period rather than a three way comparison each year.”
This sentiment was echoed by George Sweeney, pension and investing expert at comparison site finder.com, who said: “The State Pension has been increasing to keep pace with the rest of the economy, but this becomes increasingly more challenging and expensive. Most people, young and old, are in favour of the triple-lock, so I’m not surprised to see it staying. Jeremy Hunt doesn’t want to be the chancellor to kick this hornets’ nest. However, considering the government already broke the “promise” once, I think most people would rather have a sustainable system that’s stuck to for peace of mind. If you break a promise once, you can break it again.”
Not everyone will reap the full benefit
Interestingly, some experts have suggested that those who have saved for their retirement and have other income, or are in fact still working, won’t see the whole benefit of this increase due to the frozen personal allowances and tax bands.
Claire Trott, divisional director of retirement & holistic planning at St. James’s Place, gave the example of someone with extra income of £5,000 gross per annum. With a full new State Pension, they would have paid around £613 in tax, which is 20% of their income, including the state pension over the personal allowance of £12,570.
Assuming the personal allowance remains frozen in 2024/25 as expected, then the same person next year will pay tax of around £794, even though we are assuming the income outside the state pension isn’t increasing.
She added: “This basically means that the increase in State Pension will be eroded and they will only really benefit from an increase in the money they have in their pocket of 6.8%. This would be exacerbated for those who have more private income and fall into higher rate bands. We should remember that state pensions are paid gross and any taxation is usually taken from other sources of income if possible through tax code adjustments, or for those with income outside of the PAYE regime, through self-assessment at the end of the year.”
