Govt retains state pension triple lock

The state pension is set for a record-breaking increase from April 2023, after Chancellor Jeremy Hunt confirmed that the government will retain the state pension triple lock.

In the Autumn Budget Statement, Hunt highlighted the importance of 'compassion', confirming plans to increase both benefits and the state pension in line with inflation in an effort to support the most vulnerable people, as well as plans to increase pension credit.

He stated: "There is no more British value than our commitment to protect and honour those who built the country we live in. So I’ve decided to increase the pension credit by 10.1 per cent, which is worth up to £1,470 for a couple and £960 for a single pensioner in our most vulnerable households.

"But the cost-of-living crisis is harming not just our poorest pensioners, but all pensioners, so since we’ve taken difficult decisions elsewhere today, I can announce that we will fulfil our pledge to the country to protect the pensions triple lock.

"In April, the state pension will increase in line with inflation, an £870 increase, which represents the biggest ever increase in the state pension.

"To the millions of pensioners that will benefit from these measures I say now and always, this government is on your side."

Under the triple lock mechanism, the new full flat-rate state pension is expected to increase from £185.15 per week to £203.85 per week from April 2023, while the basic state pension will increase from £141.85 per week to £156.20 per week.

The future of the state pension triple lock had been thrown in jeopardy over recent weeks amid rising inflation, despite the government repeatedly committing to maintaining the triple lock for the rest of the current parliament after a temporary suspension was announced in 2021.

Aegon pensions director, Steven Cameron, suggested that the news means “pensioners can breathe a huge sigh of relief after a white knuckle roller coaster ride of past disappointments, new promises and a series of U-Turns”.

However, industry experts have warned that this increase may not be enough to keep up with rising inflation, after rising fuel prices pushed inflation up to 11.1 per cent in October.

Penfold co-founder, Chris Eastwood, for instance, pointed out that “at only £200 per week, the state pension is still not enough to afford a moderate lifestyle when you retire”.

Canada Life technical director, Andrew Tully, also warned that the rising inflation means the state pension increase may not completely cover the increases people are seeing in their outgoings.

"There is a sting in the tail as there is potential for the state pension to exceed the frozen personal income tax threshold by 2028, potentially dragging many millions more pensioners into paying income tax," he explained.

Adding to this, Cameron warned that next year’s increase could be the “last gasp” for the triple lock, warning that the current formula is looking increasingly unsustainable.

He explained: “Financially, it won’t have been an easy decision for the government looking to fill a £50bn fiscal black hole – every 1 per cent increase in the state pension costs around £0.9bn a year. And this isn’t paid for out of some fund built up in the past but from the National Insurance paid for by today’s workers.

“Honouring this manifesto commitment after ditching it last time round will provide much needed support for pensioners, many of whom are on low and fixed incomes and particularly vulnerable to rampant inflation.

"The government will no doubt have weighed up the reaction of pensioner voters if they scrapped the triple lock for a second consecutive year in the run-up to the next general election.

“But there’s a huge question mark over whether any party would recommit, in a future election manifesto, to paying the highest of price inflation earnings growth or 2.5 per cent year on year. In volatile times, using an average over 3 years or even paying out the average of inflation and earnings increases each year might be more sustainable for government and predictable for pensioners."

Hunt also confirmed that the review of the state pension age is set to be published early in 2023, confirming that this will need to carefully balance important factors, including "fiscal sustainability, the economic context, the latest life expectancy data and fairness both to pensioners and taxpayers".

In addition to this, Hunt confirmed that the government will be publishing its decision on Solvency II, in an effort to "unlock tens of billions of pounds of investment for our growth enhancing industries" and create a 'British Silicone Valley'.

Despite reports to the contrary in the lead up to the statement, the government has not announced an extension to the lifetime allowance (LTA) freeze, with PMI president, Sara Cook, "hugely encouraged" that the Chancellor has not opted to follow this path.

"Ignoring the demands of short-term pressures to safeguard the longer-term interests of the nation’s citizens shows both courage and pragmatism," she continued.

“Despite a number of rumours, the Chancellor has opted not to abolish higher-rate relief on members’ pension contributions. This will avoid introducing a mechanism to demonstrate that tax relief was granted in an equitable manner to members of both defined benefit (DB) and defined contribution (DC) schemes.”

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