At the last General Election the Conservative Government made a promise, a so-called “manifesto commitment.” That pledge is commonly known as the “pensions triple lock:” that the state pension will be increased each year by annual price inflation, average earnings growth or a guaranteed 2.5%, whichever is the greater.
For pensioners this has been good news. It meant that pensions would keep pace with wage growth and inflation and, if both those were low in one particular year, pensioners would be a little better off.
That, of course, was before the pandemic, the enormous cost of it and the financial juggling the Chancellor will need to do to pay for all the support measures put in place, and the consequent sharp rise in Government borrowing.
In early September, as had been widely rumoured, the Government broke not one, but two manifesto pledges. It increased national insurance to pay for social care and, crucially for pensioners, it suspended the triple lock for a year.
This was obviously bad news, and the move begs an immediate question. If the Government has suspended it for one year, could it do it for another year? After all, the bill for Covid-19 is not going to be paid any time soon.
Unsurprisingly, a poll showed that two-thirds of pensioners were against the suspension. Interestingly though, the research carried out by ComRes suggested that the move would be largely forgiven by the next General Election.
In this instance the triple lock has been watered down and become a “double lock,” with the wages element removed. But as we hinted above, we might well see other elements removed in the future, now that the precedent has been set. Many commentators expect inflation to hit 4% by the end of the year, could the Government remove that element in the future, too?
It will be interesting to see what Chancellor Rishi Sunak has to say when he delivers his Budget speech on October 27th. He will presumably be setting out plans for starting to repay the enormous cost of the pandemic. Given the cost of servicing all the new borrowing the Government is vulnerable to a rise in interest rates, and nothing, including the triple lock, can be ruled out. The next Election is not due until December 2024 and the Government may gamble on the pandemic and the measures taken to counter it being a distant memory by then.
The uncertainty for pensioners means that your ongoing financial planning becomes more important than ever. It is important that your existing savings and investments are arranged as tax-efficiently as possible and that you make use of all your available allowances.