Pensions experts have warned the need to ensure retirement savings are adequate has never been greater as the prime minister announces plans to scrap the triple in April 2030.
Speaking at the Labour Conference yesterday (29 September), Andy Burnham pledged to fund social care reforms by changing the mechanism that calculates how much the state pension increases by each year. Currently, the annual rise is determined by whichever is highest of 2.5%, inflation, or average wage growth. From 2030 wage growth will not be part of the equation. Questions regarding the long-term affordability of the triple lock have been circulating for some time.
Patrick Thomson, head of research analysis and policy at Standard Life Centre for the Future of Retirement, said: “This comes at a critical time for Gen X, with many approaching retirement facing pension undersaving challenges, compounded by declining access to defined benefit pensions.
“The move to a double lock needs to be considered alongside decisions on the future state pension age and wider action to improve retirement adequacy, including increasing automatic enrolment contributions.”
Angela Davis, chartered financial planner at Hymans Robertson Personal Wealth, said: “It is more important than ever that people ensure that they’re saving adequately for their retirement. If the state pension doesn’t keep pace with inflation in future, people will need to fall back on their savings, including personal pensions, to make up any shortfall.
“In addition, if someone decides to retire before state pension age or, it’s increased further, they’d need to solely fund this period themselves. So, that said, now is a good time for people to look at how much of their salary they’re contributing monthly into a pension arrangement and whether it’s affordable to increase this. Furthermore, those who are self-employed should ensure that they’re regularly saving for retirement too.”
Zoe Alexander, chief policy officer at Pensions UK, called for an independent body to assess overall pensions adequacy on a regular basis to ensure living standards are safeguarded as part of an overall package of reform.
“The removal of the triple lock makes the case for automatic enrolment reform more urgent,” she said. “The Government must support rises in contributions and a more inclusive system so that people stand a chance of building the retirements they expect.”
Rachel Vahey, head of public policy at AJ Bell, said the new administration is “in for a rocky ride”.
“Replacing the triple lock guarantee with an inflation link – even one with a minimum increase of 2.5% – risks the state pension gradually losing pace with earnings, and causing pensioners’ income to fall in value compared to workers,” she said.
“Burnham and Healey intend to address this by ensuring the state pension ‘holds its value relative to earnings over time’. But we will have to wait to delve into the detail of exactly how this can be achieved in practice.”
