The State Pension is never going to guarantee you riches but it still forms the bedrock of most people’s retirement plans.
In a State
In fact, for almost one in five people, this is the only income they will have when they stop working. That rises to one in four among single pensioners, the highest figure ever. Therefore, fears that it’s under attack should be taken seriously.
There’s a lot of concern about ‘intergenerational unfairness’ right now. Many of the current crop of retirees have benefited from final salary pension schemes and 20 years of rising house prices, while so-called Millennials are weighed down by student debt, scraping by in the gig economy and unable to afford a place of their own.
Locked out
Not everybody fits neatly into these two categories, but pressure is growing to redress the balance between old and young.
The House of Lords Committee on Intergenerational Fairness has issued a report saying pensioner households are now on average better off than many working age households. It has called for age-based subsidies to be limited, or scrapped, including bus passes, winter fuel payment, free TV licences and, crucially, the pensions triple lock.
Three-way winner
Introduced in 2011, the triple lock guarantees the basic state pension will rise by either average earnings growth, the rate of inflation, or 2.5%, whichever is highest.
Basically, it means pensioners win regardless of what happens to earnings or inflation. Invaluable in a time of low earnings and inflation. Between April 2010 and 2016, the State Pension increased 22.2%, while prices rose 12.3% and earnings only 7.6%. The triple lock was in operation for five of those six years, driving up pensioner incomes at almost double the rate of the average worker.
It has come under threat before. The Conservatives considered watering it down during the last election, then backed away.
Costly promise
It would take a brave politician to dilute the triple lock and Jeremy Corbyn’s Labour Party is committed to it. However, concerns over intergenerational unfairness could give politicians the smokescreen they need to take action.
All of which strengthens the case for saving as much as you can afford in your own name, rather than relying solely on the State. Especially since the new State Pension is worth just £168.60 a week, or £8,767.20 a year. That’s barely a third of the average national salary, even with the triple lock.
Shrinking benefit
The State Pension is also under attack on another front, with the retirement age rising to 66 for both men and women, then to 67 between 2026 and 2028. That’s why you need to do all you can to save under your own steam. If you don’t know where to start, here are five smart ways to get more than the basic State Pension.
You should make full use of Government-backed incentives such as Stocks and Shares ISAs, or tax relief on pension contributions. And of course save into a workplace scheme if you have one. That way you should survive whatever happens to the State Pension.