A topic that is top of mind for many in the current environment is the pension triple lock. While this doesn’t impact all – knowing about this is worthwhile.
From the name of the term you can guess that it only impacts those who are getting pensions. Knowing that there is some sort of security in place for later in life could give people a lot of confidence and reassurance currently.
Below I will explain what a triple lock is. I will cover the main benefits of this. These will mainly focus on people who are in retirement and getting state pension or are near the age they can expect to start receiving these.
I will also give my personal view on what I believe are the potential issues with these for the rest of the population.
what is a pension triple lock?
Pension triple lock is in place to protect pensioners from becoming worse off over time. The systems maintains the living standards of those living off the government pension.
The triple lock refers to the system where the pensions increase each year in line with one of the the following points:
- average increase of wages across the UK
- inflation as measured by CPI index
- 2.5%
The actual increase applied to the pension is the figure that is the highest of the 3. The increase is applied each year at the start of the new financial year in April.
The government previously had promised to keep the triple lock in place as of start of 2019. This however got abandoned during COVID.
The unusually large increases in wages were blamed for this. There was however a promise to restore this at the beginning of 2023-24 financial year.
The new prime minister has not confirmed yet if this will actually be the case or not. The major concern with this actually happening is extremely large levels of inflation.
With the government currently having a massive budget deficit – this might play against the triple lock coming back into effect.
the current state pension
The current state pension in the UK can allow someone to get the ends to meet if they have no mortgage to pay … barely.
And with the current levels of inflation in double digit – this will only make things worse for those who need the support the most.
There are currently 2 different pensions in the UK:
- full pension for those who have reached state pension age before 2016 – £141.85 weekly
- full pension for those who have reached state pension age after 2016 – £185.15 weekly
You need to be 66 to get the state pension as it currently stands. This is planned to increase to 68 by 2046.
As you can see – the state pension you get isn’t that great as it stands. You should consider building your own pension pot on top of the state pension.
Most people will go in one of the following two ways about this. Firstly, employees can take advantage of SIPP. Secondly, ISAs can be a great way to build a pot of cash in a tax efficient way.
You can open these accounts with many different companies out there. The one I am using currently and would highly recommend is HL.
cons of pension triple lock
This is something that I personally believe might be the future of state pension. Due to ageing population and longer life expectancy – the state pension will keep being squeezed.
The above is simply true due to the fact that the government is currently running a significant budget deficit. Fast forward a few decades – there won’t be enough money to sustain the state pension.
The government will start pushing the responsibility for this onto family members.
This is where I believe having a pot of cash that can sustain your required standard of life at an older age is vital.
Plan your retirement as if there is no state pension. If any state pension ends up landing in your bank account – it’s simply an added bonus. I’m sure finding ways to spend more money will be the least of your problems.
summary
Pensions is not something that most of us think while we are young. This in my personal view is a massive miss!!
While there are state pensions in place – these won’t stretch too far. On top of that, do you really want to be in full time employment up to the age of 68?
What is even more concerning – the levels of current debt in the UK don’t give me confidence that there will be a state pension in decades to come.