Michele Carby examines how Rishi Sunak is trapped by the 'triple lock' promise on annual increases on UK pensions.
As if the UK’s economic problems wrought by Covid lockdowns were not enough pain to wrestle with, Chancellor Rishi Sunak is facing a pensions puzzle that is likely to force some difficult decisions in the near future.
The Conservative Party Manifesto on which last year’s election promised voters a ‘triple lock’ on pension rises, consisting of matching whichever is higher between cost of living increases determined by the Consumer Prices Index (CPI), average wage increases or a 2.5% benchmark. As things stand the rise next year is set to be 2.5%. The Office for Budget Responsibility (OBR) expects the increase to be a further 4.1% the following year based on estimates of wage increases as the economy bounces back after a year of lockdowns.
The Institute for Fiscal Studies (IFS) expects pensions to rise much faster than wages increasing by 6% in real terms by 2025. At a time when many people, particularly the young, are out of work and struggling financially this is likely to lead to serious political strife as the Chancellor tries to plot a recovery for the embattled economy.
Regardless of what happens, the UK state pension remains one of the least generous in Europe. The flat rate (for those who reached state pension age after April 2016) is just £175.20 a week. For those retiring before 2016, it stands at a meagre £134.25 a week.
As the figures demonstrate, any UK citizen or resident that wants to retain a reasonable standard of living after retiring should be looking at a private pension scheme. Our webinar on pension planning is available here for those looking to save for retirement and ensure a comfortable life in their golden years.
If you would like to discuss how pension planning or any other financial planning issue, please get in touch with me. You can email me at [email protected] or if you prefer, call me direct on +971 50 618 6463.