What is “Triple-lock” Guarantee on State Pension Benefits?
Much has been written about the “triple-lock” guarantee on State Pension benefits. But what exactly is it and how would it affect you if changes were made?
The “triple-lock” mechanism increases your state pension benefits on an annual basis by price inflation, average earnings growth or 2.50%, whichever is highest.
In a low inflation environment and in periods of deflation, those in receipt of state pension income are currently set to receive a generous 2.50% annual increase to their entitlement, regardless of their economic circumstances. Critics argue that this raises questions around intergenerational fairness between today’s working age population and those above working age. On the other side of the argument, Age UK say that getting rid of the “triple-lock” will reduce pension pots for the poorest in society.
Under current legislation the “triple-lock” is guaranteed until 2022. At which point, if it continues to be retained, it could add billions to the social security budget and be further exacerbated by changing demographics in the UK.
Several reports have already been released on its suitability and sustainability. The most important originating from the Government’s Actuary Department and the Pensions Select Committee. The solution which appears to be gaining the most traction is replacing it with a “double lock”, where benefits would increase by average earnings growth and inflation only.
Considering the above and the recent reforms to the state pension age, I would encourage anyone to build a personal retirement plan as relying on the state to solely fund your retirement could prove to be a gamble. Should you need any help developing your retirement plan, please do not hesitate to contact a member of our financial planning team on 01772 821021.