The chancellor’s autumn statement is just hours away and the news has been full of what he may announce. Amid the speculation about inheritance tax, ISAs and national insurance it could also prove to be a big day for pensions with a series of important announcements potentially making an appearance.
One key thing we are waiting for is whether government will pledge to increase the state pension according to the rules of the triple lock next year. The triple lock increases state pension by whatever is highest of 2.5%, inflation or average wages. Inflation may be falling but wage growth has been rampant and if the triple lock is used it could put state pensioners in line for an 8.5% increase next year.
For someone on the full new state pension this would see their pension grow from £203.85 to £221.20 per week. For someone who hit state pension age before 2016 their full weekly basic state pension would rise from £156.20 to £169.50.
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Such a weighty increase comes off the back of the previous increase of 10.1% and adds to the government’s headache of how to contain the huge cost of this benefit. One option is for them to tweak the triple lock and adopt a lower figure. For instance, the 8.5% wage figure has been swollen by the impact of bonuses given to NHS and civil service workers. If you strip out the effect of these bonuses the figure is more like 7.8%. They could also opt to use the relevant CPI inflation figure which is 6.7%
The government has tinkered with the triple lock in the past – when wages data was affected by the furlough scheme during the pandemic, so there is a precedent here. However, given the looming general election the government may decide to keep the triple lock in place.
A pension is for life
We change jobs several times during our working lives and there is a chance that you may lose track of some of the pensions you’ve built with various employers. Even the smallest pensions will grow, and by the time you come to retirement you could be missing out on thousands of pounds that could be going towards your income in retirement.
Read more: Is your pension safe?
One proposal we hope to hear more about is the Lifetime Pension which would allow savers to keep one pension pot for their whole working lives. This would make it easier for people to keep track of their pensions and by watching them grow boost their engagement with retirement planning.
More choice for investments
We are expecting more detail on government plans to help pension schemes invest in more illiquid assets – which is another way of saying investing in things that are a bit more difficult to buy and sell – like the shares of companies that aren’t on the stockmarket. This is part of the high-profile Mansion House reforms announced over the summer, where several large pension providers pledged to put 5% of their default fund assets into high growth British businesses by 2030.
The idea is that investing in these businesses will not only boost the economy but people’s pension pots too, with the government estimating it could increase a typical earner’s pension pot by as much as 12% over their working life.
Read more: ISA: Call to restore real value of allowance and scrap LISA cap
A strong home market is good news for investors, but the plan has met with some concerns that these investments may push up fees and not deliver higher returns for pension scheme members. We will be looking for further detail on how the government can ease these concerns.
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