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News Update: Triple Lock on Pensions Should be Scrapped?

News updates are quick reads for UK doctors and dentists that will help you stay up to date about the latest financial news that could impact you and your business.

This article does not constitute advice. Professional advice should be taken prior to acting on any part of it.

Introduced in 2011, pensions “triple-lock” guarantees generous state pension increases – keeping the rate consistent with whichever is the highest — inflation/ average earnings growth, or 2.5%. In response to the economic crisis caused by the coronavirus global pandemic, some experts think doing away with the “triple-lock” is the right move.

How pension changes could relieve some burden of economic recovery

The countrywide lockdown designed to help prevent the spread of COVID-19 has caused economic issues that might take time to recover from. Working-age people will be impacted the most as they face redundancies, service cuts, higher taxes, and slower GDP growth, only increasing the disparity between the young and the old.

In the last ten years, pensioner income has grown despite workers not seeing significant wage increases. However, according to the think tank Social Market Foundation (SMF), things need to change; the burden of recovery must be felt equally.

SMF contends that the 2.5% minimum guaranteed pension rise should be done away with. They propose a savings of £20bn could be found over the next five years by simply replacing the “triple lock” with a “double-lock”.

Pensions only rising in line with inflation or earnings would go a long way to level the playing field as growth rate in the foreseeable future will most likely be hindered due to the coronavirus outbreak.

Recovery will likely be slow and painful but keeping a triple lock guaranteeing a minimum 2.5% wage increase disproportionately benefits pensioners when the rate of unemployment continues to trend in the wrong direction and those who are working won’t have and noteworthy wage increases for some time.

The research director for SMF, Scott Corfe states, “The crisis has emphasised our obligations to other generations, even in the face of personal sacrifice. There is a clear case for intergenerational reciprocation when it comes to meeting the fiscal costs of the crisis in the years ahead.”

He goes on to further assert that the efforts of the country have been made to protect the vulnerable population, including the elderly and that once this is all over, the idea of putting others before yourself must remain. It shouldn’t fall to just one group to turn the economy around, it should be shared equally across all generations.

How would your retirement plan be affected should this change take effect?

If you have any questions about how your pension might be affected, get in touch today.

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