The State Pension triple lock has been in place for over a decade. It was first introduced by the coalition government back in 2010 and the Conservative party promised in their manifesto to maintain it until at least 2024.
That promise, however, came before the outbreak of the global pandemic and the record borrowing that resulted from it.
One unexpected consequence of coronavirus – and more specifically the chancellor’s Coronavirus Job Retention Scheme (known as “furlough”) – could be the scrapping, or at least the postponement, of the State Pension triple lock.
So, what is the triple lock? Why might it be affected by the government’s furlough scheme? And what could a change to the State Pension mean for your retirement plans?
Keep reading to find out.
How much is the State Pension currently worth?
For the 2021/22 tax year, the full new State Pension is worth £179.60 per week – or £9,339.20 a year. To receive this full amount, you’ll need 35 “qualifying years” on your National Insurance record.
If you have between 10 and 35 qualifying years, the amount you receive will be calculated based on the exact number of years. However, if you have less than 10 qualifying years you won’t receive the State Pension at all.
Use the government’s website to check your National Insurance record and then speak to us if you are not in line to receive the full amount. It might be possible to make voluntary contributions to top-up your State Pension.
What is the State Pension triple lock?
The triple lock is a promise to raise the State Pension each year to ensure it reflects the cost of living. Each April, the State Pension rises by the highest of three measures (hence the triple lock).
Those measures are:
- 2.5%
- Average earnings growth
- Inflation
The uplift is usually confirmed in the autumn.
What will happen to the State Pension next year?
The triple lock has had its critics for some time. The pandemic has put it under even greater pressure, leading to intense scrutiny of the decision the chancellor makes.
In 2020, as the UK went into lockdown due to the coronavirus pandemic, Rishi Sunak introduced his Coronavirus Job Retention Scheme.
More commonly known as the “furlough scheme”, under the rules of the scheme, the government paid 80% of wages for staff who were unable to attend work due to the lockdown – up to a monthly limit of £2,500 per employee.
The scheme was designed to prevent job losses and the BBC reports that 11.6 million UK workers have been covered by the scheme since its inception. This was at a total cost to the government of £64 billion.
But what does this have to do with the triple lock?
In 2020, with many sectors struggling and millions of workers on 80% of their usual pay, both average wage growth and inflation were low. Therefore, the State Pension rose by 2.5%.
As the economy has recovered, however, and people have returned to work, average wage growth has seen a significant rise. The latest figures suggest that average wage growth this year could reach 8%. Because the triple lock means the State Pension rises in line with the highest of the three measures, those receiving the State Pension could be in line for a windfall.
This is a big problem for the government. The cost of such a large rise is calculated at around £3 billion more than they would have expected, and at a time when they are already struggling to rebalance the public purse.
What does this mean for you?
An 8% rise would mean an increase in April 2022 from £179.60 a week to £193.97 a week, a rise of nearly £750 over the year.
The government has borrowed record-breaking amounts since March 2020 and the pandemic could provide the perfect reason to scrap – or at least temporarily freeze – the triple lock. If that happens, your State Pension might increase by 2.5%, or even less.
This could be an unpopular decision and have longer-term consequences for your retirement plans. But it might be a risk the government is willing to take.
Get in touch
While it remains to be seen what Rishi Sunak will choose, your long-term retirement plans don’t need to change if your long-term goals haven’t. If you are worried though, Fingerprint are here to help.
If you would like to discuss your State Pension entitlement or any aspect of your retirement planning, get in touch by emailing hello@fingerprintfp.co.uk or call 03452 100 100.
Please note
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The value of your investment (and any income from them) can go down as well as up, which would have an impact on the level of pension benefits available.
Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances. Levels, bases of and reliefs from taxation may change in subsequent Finance Acts.
