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So what exactly is the ”triple-lock”?

September 2, 2016

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Type: Advice for Individuals, Financial Planning, Latest Blogs, Trending, Wealth management

There has been much made in the press in recent weeks of plans to end the “triple-lock” guarantee on State Pensions. But what exactly is the “triple-lock” and how would it affect you if changes were made?

 

Since 2010, the “triple-lock” policy has meant state pensions rise by the inflation rate, average earnings or 2.5% – whichever is highest. The Conservatives promised to keep things that way until at least 2020 in their 2015 election manifesto. It was based on the assumption that so-called “pensioner households” were more likely to be on low incomes than other age groups.

 

So why change things now?

 

In a period of deflation, it is common for both prices and earnings to fall. In this scenario, whilst the economy is struggling we would be paying State pensioners a relatively generous 2.5% increase on their pensions, regardless of economic circumstances. In a low growth environment, promising such an increase adds billions of pounds to the social care system over the decades to follow.

 

The campaigners against the triple-lock argue that we shouldn’t ring-fence the standard of living of one part of society. Why should pensioners benefit from such generous guarantees when the rest of the population is suffering? The contra-argument, from the likes of Age UK, is that it provides pensioners with much needed financial security. Relatively speaking, the charity argues, the UK “state pension is worth appreciably less than its equivalent in many other developed countries”.

 

What is the alternative?

 

A number of options have been muted. First is the double-lock, linked to inflation and earnings only. A slimmed-down version of the triple-lock has also been suggested, where all three measures remain, but the minimum increase of 2.5% is reduced to a lower and more sustainable amount.

 

Has anything actually been agreed?

 

Despite the many calls to end the current guarantee, the government has recently confirmed that there are no plans to abolish it. So for the time-being, the triple lock stands.

 

Lucinda Moylan is financial planning operations manager at Chiks. Contact Lucinda on 01772 821021.

 

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