The future of the State Pension triple lock mechanism was in danger long before the coronavirus crisis emerged. The dire economic consequences of this most-recent pandemic could well prove the tipping point for this critical insurance policy though. And so many, many thousands of future UK pensioners threaten to be plunged into poverty.
The State Pension danger
Speculation has been growing in recent weeks that the State Pension triple lock is on borrowed time. The device ensures that annual increases in the State Pension must rise by the rate of inflation, the pace at which wages are growing, or by 2.5%, whichever is the larger figure.
But the State Pension’s threat level went up several notches at the end of last week. Mel Stride — influential MP and Conservative chairperson for the Treasury Select Committee — suggested that the government temporarily drops the part of the mechanism linked to wage growth.
Projections suggest that British salaries could rocket by almost 20% next year, creating a massive headache for a public purse already struggling to finance its rapidly-ageing population. Treasury hotshot Stride commented that “most people would recognise that a potential double-digit percentage increase is unrealistic” and that “the pensions triple lock will produce unintended consequences in its current form.”
This is what you might need to retire in comfort
It’s clear by now that we all need to do what we can to save for our retirement. I’ve put stock investment at the forefront of my own strategy to deal with what’s likely to become an increasingly threadbare State Pension.
Fortunately, I’m in a position to regularly save for my retirement. But putting money aside each month likely won’ be enough for most of us to enjoy a comfortable retirement. You need to find a good yield on your cash in order to make the sort of returns needed to live a comfortable retirement.
The boffins over at Aegon reckon that the average Briton will need to have built a pension pot of at least £300,000 in order to maintain their current quality of life. It’s unlikely that you’ll make that sort of sum by just locking your money away in a low-yielding Cash ISA. The best interest rates on these products sit just north of 1% right now. And they’re likely to keep falling amid continued Bank of England rate slashing, further reducing the returns on offer.
Could stock investing save your bacon?
Stock investing offers a much better way to make that magic £300k marker. Someone who invests £215 a month can, over the space of 30 years, expect to have reached such a target. This is based on studies showing that long-term investors enjoy an annual average return of at least 8% a year. I’ve built a diversified portfolio of shares to help me build a decent pension pot.
There’s a lot of macroeconomic and geopolitical uncertainty for investors to digest right now. Subsequent fears of another stock market crash are discouraging plenty of would-be share buyers from taking the plunge. But this is a mistake in my view. Share market volatility is nothing new, and with the right approach it’s still possible to make great returns.
Uncertainty over the State Pension is a worry of course. But by taking action you can avoid the threat of pensioner poverty and still retire in comfort.