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Keeping track of State Pension changes

30 June 2017

The huge raft of changes introduced for private pensions in April 2015 should be evidence enough of the need for employers to ensure that any financial education program they offer their workforce is on-going rather than conducted on a one-off basis.

After all, all the information in the world gleaned about buying an annuity will be of limited use to those wishing to take advantage of their new freedoms and dip into their fund as and when they need to.   

But it is not only private pensions that are subject to change. Recent years have also witnessed their fair share of tinkering to the State Pension, and this doesn’t show signs of stopping any time soon.

The level of income that an employee receives from this source will have a direct bearing on the amount of private pension provision they need to make, and it can also impact on employers’ succession planning – because employees who fail to secure adequate retirement income may not be able to leave when they originally intended.

The most publicised changes have been the introduction of the new flat-rate State Pension and the increases in the State Pension age, and the latter story is still very much ongoing. Some are predicting the age could rise beyond the 67 intended by 2028 and eventually reach as high as 70 for the current under 30’s.

But there have also been significant changes to the safeguards that come with the State Pension. In 2010 the Coalition introduced the triple lock – which guarantees to increase it every year by the higher of inflation, average earnings or a minimum of 2.5%.

With earnings growth having been extremely weak during recent years, this guarantee has become something of a political hot potato as it has had the effect of boosting the value of the State Pension relative to both average earnings and prices.

According to the Institute for Fiscal Studies (IFS), between April 2010 and April 2016 the value of the State Pension rose by 22.22%, compared to growth in earnings of 7.6% and growth in prices of 12.3% over the same period. Pensioners have consequently seen their incomes rise at almost double the pace of the average worker.

It is the 2.5% element of the triple lock that has come under most scrutiny, as it has already been used in three years – 2013/14, 2015/16 and 2017/18. Some therefore express the view that it appears to give older people an unfair advantage at a time when politicians are becoming increasingly aware of the need to capture the support of younger voters.

The Conservative party had pledged to maintain the triple lock until April 2020, when the 2.5% underpin would be removed. But, in view of the numerous U-turns the party has made in recent months, it is not clear whether this will be honoured.

During the recent election campaign the Conservatives were understood to be intending to revise this pledge to a double lock that links State Pension increases just to rises in earnings or inflation. However, in view of their reduced majority and resistance to the idea from the Democratic Unionist Party (DUP), they might not do so. At the time of writing it is not certain whether the change will be included in the Queen’s Speech or not. 

Labour – somewhat ironically for a party that is appealing strongly to younger voters – has vowed to protect the triple-lock until 2025. But, with many question marks having been raised about the party’s ability to fund all its manifesto pledges, there is no actual guarantee that this would happen if it was elected.

The only thing that does appear to be entirely certain is that the triple lock and the State Pension are rarely going to be out of the political limelight in the foreseeable future. This therefore represents one more very good reason for employers to ensure that their workforces receive access to an ongoing regular financial education programme to keep them up to date with any developments.     

If you would like to receive more information then please do not hesitate to contact Chase de Vere on 0345 300 6256 or complete this simple form and we'll call you.