The Government’s reactive spending to the COVID-19 pandemic poses a major threat to the ‘triple lock’ on the state pension. Will UK pensioners be forced to pick up the bill for the pandemic?
HOW MUCH MONEY HAVE THE GOVERNMENT SPENT ON COVID-19?
Forecasts predict that the crisis in Britain will cost £300bn this year, as the cost of emergency support for businesses and workers spirals. As a result, the Government will need to recoup the costs from where it can.
Recently leaked Treasury documents revealed that it would be “very difficult” to recover the coronavirus crisis spending without considering a series of cost-saving measures, such as raising taxes and removing the ‘triple lock’. This could result in a decline in pensioners’ income.
WHAT IS THE STATE PENSION ‘TRIPLE LOCK’?
The ‘triple lock’ is a safeguard that ensures the state pension doesn’t lose value because of inflation. The ‘triple lock’ was introduced in 2010 by the Conservative-Liberal Democrat Coalition Government. The product of the ‘triple lock’ has been rising incomes for pensioners while average wages have plateaued.
WHY IS ‘TRIPLE LOCK’ GOOD FOR YOU?
Increasing the state pension over time is really important for pensioners given the size of the UK state pension (only £9,110.40 a year in 2020/21). The cost of living fluctuates year on year, so your state pension needs to mirror those changes. For example, the price of a pint of milk has doubled since 1990 (that works out as an increase of around 2% each year).
WHY IS THE ‘TRIPLE LOCK’ AT THREAT?
A month ago the thinktank, the Social Market Foundation (SMF), recommended the ‘triple lock’ be scrapped to ensure the fair distribution of support cuts across the young and old.
The SMF claimed that the pandemic is causing younger generations to undergo a greater financial strain when compared to older generations.
A recent survey on job security during the crisis found that those aged between 40 to 55 were twice as likely to keep their jobs than the under-30s.
SMF arguing that “in the post-crisis world of slow, painful recovery, a triple lock ensuring a 2.5% minimum rise in pensions would constitute enormous generosity to pensioners, at a time when working-age adults face low or no wage growth and significant unemployment”.
WHAT WOULD HAPPEN IF THE ‘TRIPLE LOCK’ IS SCRAPPED?
If the Government decides to scrap the ‘triple lock’, it will most likely be amended to a ‘double lock’. A ‘double lock’ on the state pension would still increase it over time (although at a reduced rate), but the increases would not outstrip inflation. Thus, still providing support for pensioners, but decreasing your buying power over time.
WHAT DOES THIS ALL MEAN FOR YOU?
It’s important to note if the ‘triple lock’ is removed that it would not have an immediate impact on pensioners. This is good news if you’re currently retired, the changes to pensioners’ relative income would happen gradually, over a number of years.
However, if you are looking to retire in the next few years you might want to consider the information above and plan accordingly.