State pension age will ‘have to increase’ unless Sunak changes triple lock

Rishi Sunak 'knows his days are numbered' says expert

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Reports today have laid bare just how much pension pots could lose as a result of a change to the triple lock policy. Savers could end up £12,000 worse off by the time they reach age 85 if the 2019 manifesto pledge is ditched. Abandoning the triple lock would see 12.4 million state pensioners lose out on a historic boost and someone turning 66 this year would be £11,866 out of pocket by age 85, the Telegraph reported.

Chancellor of the Exchequer, Rishi Sunak, wants to uphold a manifesto pledge to maintain the triple lock.

The triple lock guarantees that the state pension increases each year in line with the highest of the following: the rising cost of living seen in the Consumer Prices Index (CPI) measure of inflation, increasing average wages, or 2.5 percent.

But, due to the pandemic, average earnings have seen a huge bounce back of around eight percent, and experts have warned this figure could surpass 10 percent.

Many have argued that it would be unfair to ask the younger generation to pay for such a big increase, and AJ Bell analyst Tom Selby tells that big changes to the state pension are inevitable.

He says that the Government will spend less on the state pension over time.

Mr Selby told “The reality is that the amount the Government spends on the state pension is going to reduce over time due mainly to demographics.

“The idea that the state pension will remain in its current form in the long term is pretty fanciful, there is a limited amount of Government resource for the state pension.

“The more that is spent in the short term increasing state pensions, the more likely it is that the state pension age for example will go up.

“I get the logic that everyone benefits from the triple lock – but the reality is that the quicker the pension increases the quicker higher pension ages will come into place, which will affect younger people.”

Mr Selby adds that this situation shows that the triple lock “cannot be maintained”.

He continued: “The triple lock cannot be maintained as it has been applied over the past 10 years or so.

“Historically, the Government has used average earnings in the three months up until July as the figure to use for triple lock.

“Because of what’s happened with the lockdowns and how that affected earnings last year and the subsequent bounce back this year, we are almost certainly going to see a big spike for that average earnings figure.

“A lot of economists are expecting that figure to stand at about eight percent, which could cost the Chancellor anywhere up to around £3billion compared to what they thought they were going to spend.”

While many are concerned that younger generations should not pay for the increase, abandoning the triple lock has also raised fears over the disproportionate impact on women.

Almost two fifths of women over the age of 55 do not have private pension savings and rely solely on the state pension to fund their retirement. This level drops to 17 percent among men of the same age group, according to polling from Barnett Waddingham.

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Among the millennial age group, pension saving is roughly equal thanks to rules which require most firms to automatically enrol workers in to retirement savings plans, known as auto enrolment.

But there remains a gap between those above the age of 40.

This is because women have taken more time out of work for reasons such as childcare, resulting in lower earnings and savings.

Around half of women aged between 45 and 54 have a workplace pension, compared to around two thirds of men, the research by Barnett Waddingham found.

Mr Selby explained why women could be affected more by a triple lock change.

He said: “Women will be more affected because they tend to have smaller pension pots compared to their male counterparts.

“The main cause of this is that they tend to still have lower salaries in the workplace – which means a lower pension pot over time. There are a number of other factors also at play here.

“If you have a smaller private pension, the state pension will be a larger part of your overall pension – so changes to the state pension will affect you more.”

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