Anyone who receives a state pension might have reason to celebrate this month.
The new tax year saw a hike in state pensions. The triple lock on state pensions ensures payments rise in line with inflation, average wage growth or 2.5% – whichever is highest – each April.
As we all know, inflation has been running wild over the last year, and this means that from April 6 this year the full state pension will rise by 8.5%, from £203.85 to £221.20 per week.
An increase of £17.35 is better than nothing, even if it means the celebration will be rather low key.
But there may be some hidden costs to make any celebration even more muted.
Triple lock – double figure inflation
The fact is that pensioners might be just £20 a year better off after adjusting for inflation, a leading think tank the Resolution Foundation has said.
The 8.5% rise in the state pension might leave retirees £190 better off but the gain will be offset by the Chancellor’s six-year freeze in income tax thresholds, which will cost pensioners £170 – meaning those who pay tax stand to gain just £20 overall.
Chancellor Jeremy Hunt’s six-year freeze in income tax thresholds means that pensioners will be very little better off in real terms this year after their triple lock increase was all but wiped out by stealth tax raid increases. Many will find that they are paying tax on their pension for the first time.
Plus of course there is the problem of inflation itself. It has come down from the eye watering double figures of last year and February’s figure showed 3.4% annual inflation, the lowest level in almost two and a half years, but it is still whittling away at the value of money.
It looks as though the gains on the triple lock swings are lost on the tax and inflation roundabout.
What happens now?
An election and possible change of government, and the spiralling cost of the state pension all mean the future of the triple lock could be in doubt.
The costs of providing the state pension for a retirement population that is growing as a group and living longer as individuals are going up every year. The state pension cost £110.5bn in 2022-2023, and the Office for Budget Responsibility believes it passed £124bn in 2023-2024. Further increases are looking increasingly unaffordable.
If you have to rely on the state pension in your retirement, you might be looking at not just roundabouts, but helter-skelter style falls in your standard of living.
So, what can you do?
A bigger state pension is of course positive, but the gains may be short term.
If you want a comfortable retirement the need for a personal private pension, and a sizable pension pot is greater than ever. At Continuum we can help you find the most effective pension strategy to help you build up the savings you need. A properly planned pension strategy can help make your contributions work harder to deliver growth, without putting your pension pot at risk.
But what if you are already drawing your pension?
You might feel that if you are already drawing your pension, it may be too late to do very much at all – but that might not be true. At Continuum we can look at your finances in retirement.
We may be able to find ways to make your drawdown arrangements more rewarding for you, or help you find other possible sources of wealth.
For the help you need to make your pension work harder, call us today.
State pension rise – when the new increases will be paid – Which? News
UK inflation falls to 3.4% – lowest level for almost two and a half years – BBC News
Triple lock for pensions to be in Tory manifesto, Jeremy Hunt says – BBC News
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment or retirement strategy, you should seek independent financial advice before embarking on any course of action.
The Financial Conduct Authority does not regulate taxation advice.
A pension is a long-term investment; the fund value can go down as well as up and this can impact the level of pension benefits available. Pension Income could also be affected by interest rates at the time benefits are taken.
Pension savings are at risk of being eroded by inflation.
Accessing pension benefits early may impact on levels of retirement income and your entitlement to certain means tested benefits.
Accessing pension benefits is not suitable for everyone. You should seek advice to understand your options at retirement.
