The state pension looks set to receive its biggest increase in a decade next year, thanks to a sharp rise in earnings caused by the end of lockdown.
If you are looking forward to retirement in the near future, this sound like good news – but at Continuum we are looking at the implications for your retirement plans.
What is the problem with more pension money?
The state pension is rarely enough to live on comfortably. However, as part of a planned retirement income, made up of an employer’s pension and perhaps a personal pension as well, it can play a vital part in paying for a comfortable retirement.
One of the reasons for this is the triple lock, the arrangement which guarantees the state pension rises every year in line with wage growth, inflation or 2.5%, whichever is the highest.
The triple lock was introduced to the UK state pension in 2010 and become part of the government’s deal for retirees. It guarantees that the state pension would not lose value in real terms, and that it will increase in line with three separate measures of inflation – hence ‘triple lock’.
While your employers’ final salary pension may be fixed for the rest of your life, the income from your personal pension may fluctuate, however, the triple lock will help ensure that your retirement income can steadily increase.
You can’t afford to take chances with your pension. To understand exactly what you can expect, call us for some free initial help.
The state pensioners will receive a 2.5% boost this April, the minimum annual increase under the triple lock. Those on the full state pension will therefore see their income increase from £175.20 per week to £179.60 from April 2021.
But there are some worrying suggestions that inflation could run out of control thanks to an inevitable spending boom as Britain exits lockdown. Next year, with inflation predicted to hit 4.6% the triple lock would push the new state pension up to £187.86 per week from April 2021.
This sound like good news. But it could add an estimated £1.5bn to the Treasury’s pension bill at a time when tax revenues are down and the bill for the Covid crisis has meant a deficit of £355bn and counting.
We might all start asking whether the country can afford the triple lock.
Guy Opperman, the pensions minister, has gone on record as stating that the Government’s commitment to the triple lock policy still stood, but he refused to rule out changes being made over the coming months.
The Treasury has a growing cash crisis developing, and a freeze on the growth of state pensions is not out of the question.
So, what can you do about a state pension shortfall?
If the state pension forms part of your retirement plans, as it does for most people, you may need to take action.
You could of course simply continue working for a little longer, to let your employers’ and personal pension take up any slack caused by a relaxation of the triple lock. But you might prefer the idea of getting your money working harder, rather than you.
At Continuum we can help you boost your pension pot and make the most of the savings you already have.
We can start with a full pension review – which will show you just what your income may be in retirement, whether you need to look at your pension plans again and ensure that you can still look forward to the kind of retirement you want.
We can review your current pension arrangements and help you find ways to make the most of your pension pot. Call to book an appointment today.
At Continuum we know that any potential bad news about the triple lock and your state pension need not mean bad news for your retirement prospects – if you act now. Call us today on 0345 643 0770
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable retirement strategy, you should seek independent financial advice before embarking on any course of action.
A pension is a long term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Pension income could also be affected by interest rates at the time benefits are taken.
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