Andy Burnham has announced that the pension triple lock is set to be replaced with the double lock in 2030, as the Prime Minister looks for ways to fund his social care plans. Under the current triple lock, the state pension rises each year by the highest of average earnings growth, inflation or 2.5%. From 2030, Burnham's plans would see the state pension increase every year at least by inflation or 2.5% - but remove the automatic annual link with average earnings.
The news will undoubtedly worry pensioners and those approaching state pension age, with many needing to find alternative ways to plug the gap in their finances. Michele Tieghi, financial expert and founder of psyfi money, unpacks five ways to prepare for the change.
Check for missing National Insurance years
Your State Pension partly depends on your National Insurance record. You require at least 10 years of contributions to qualify for anything, while 35 years will give you the full rate. This might affect some people if they were unemployed for a period of time, earned too little to pay National Insurance, lived abroad, or didn't make the relevant contributions whilst being self-employed.
You can check your NI record on the government website, which, in some circumstances, allows you to make voluntary contributions to turn an incomplete year into a qualifying year. Under the new state pension system, one additional qualifying year can add around 1/35th of the full state pension. This currently works out to £6.89 a week, or £358 extra a year. If you fill three missing years, this adds up to £20.68 a week, or £1,075 a year.
Increase private pension contributions and consider deferring
If you're still working, you could start increasing your contributions to your private pension to offset the triple lock cut. For example, if you put in an extra £50 a month, this works out to £600 a year. Also, given pension contributions generally receive tax relief, basic-rate tax payers will only need to pay £40 a month for a £50 contribution. Investing that £50 a month over 10 years, in a pension offering a five per cent return, would leave you with around £7,760 extra. This pot can then be used in retirement to supplement the changes to the triple lock.
There's no requirement for you to claim your state pension when you reach state pension age. In fact, if you defer it, then your later payments will increase. For people reaching the state pension age under the new rules, it increases by 1% for every nine weeks deferred, which works at 5.8% for a full year. The current full state pension is £241.30 a week, but if you defer it for a year, then it increases to £255.24. This works out to an extra £13.94 a week, or £725 a year. So this could help compensate if the triple lock was weakened. However, it's important to remember that you would have given up £12,548, meaning it would take 17 years for you to make that back.
Claim Pension Credit and build accessible savings
Lower-income pensioners should check if they're eligible for Pension Credit, which helps those who receive little income above their state pension. The Guarantee Credit element can top up earnings to £238 a week for a lone pensioner, or £363.25 for a couple. It can also be a gateway to other financial support, such as help with council tax, housing costs, and dental treatment, as well as heating-related support. Not everyone will qualify for this as it's means-tested, but it does provide a financial safety net for pensioners most exposed to the triple lock changes.
Putting money into an accessible savings account before retirement will mean you are less reliant on your state and private pensions. Cash and Stocks & Shares ISAs are great options for this, as they offer tax-free returns. If you put away £50 a month for 10 years in an account with a 4% return, then you'd build £7,360. This money can also continue building whilst you're retired, helping to offset the changes to the triple lock, whilst also being easily accessible.
