There’s been a lot of chatter about State Pensions recently.
Largely due to issues stemming from the current ‘triple lock’ system. Which, if followed correctly, could see a pension increase of 8% next year.
Here’s everything that’s going on and my thoughts as to whether there will be a larger than normal pension increase in the UK.
What is the ‘triple lock’ State Pension system?
The triple lock system was introduced by the UK government back in 2011.
It sets out rules for the state pension, mostly around how it will increase each year. It needs to increase in order to match inflation levels. Otherwise, as inflation does its thing, all the old people on pensions will find that their money now buys them bugger all.
‘Triple lock’ is a typical dorky term that you’d expect from government officials. It basically sets out the rules that each year the state pension must increase by whichever of these three is the highest:
- Inflation rate
- Average earnings growth
All sounds fair and reasonable right?
Why could the State Pension rise by 8%?
This is mostly to do with the coronavirus pandemic.
The virus has obliterated the jobs and livelihoods of many low-paid workers. On top of this, some companies have made buckets of money and are able to offer wage increases to staff. Then the cherry on top is that some businesses are struggling to attract workers and so they’re having to offer higher wages to entice people.
All this leads to a triple wage increase ice-cream sundae.
As a result, average earnings growth has risen by 8%. So if the government were true to their word and stick to their own policies, the state pension should rise by a corresponding amount of 8%.
Will the State Pension rise by 8%?
Chancellor Rishi Sunak is already laying out the table to try and weasel out of this triple lock. But just for this year because it is an anomaly.
Which is a fair point and the increase would cost a lot in tax spending. However, I would argue that the triple lock system was designed and put in place for a reason.
If wages are going up, then this is probably going to lead to higher levels of inflation.
So refusing this increase to pensioners is likely going to reduce their overall buying power of their pension. Things will costs more for them tomorrow than today.
What should I do about my pension?
The state pension isn’t what it used to be and if you’re not already retired, you should avoid pinning your hopes on government handouts.
The government increases the state pension age regularly and as we might see unfold here, they very rarely stick to promises.
When times are tight, pensions are one of the first things to get hit. Which, as one heavy metal band puts it, is “Sad but True” - Metallica 1993.
So what do you do?
Take the power back! Do not leave yourself in a position where you are reliant upon the government to help you in retirement.
This way once you reach retirement, it will barely cross your radar when there’s shock news of the government going back on their word and ignoring their own policies.