Chancellor Jeremy Hunt could readdress the commitment to a pension triple lock, says financial expert Peter Sharkey.

Following a succession of high-profile political debacles, the last thing the Rishi Sunak government needed was for chancellor Jeremy Hunt’s recent Autumn Statement to include a raft of controversial measures.

Fortunately for the Prime Minister, on November 17 Mr Hunt confirmed that the government would continue to stick to the state pension triple lock, increasing the payment by 10.1pc from April 2023 in line with September's inflation rate. 

The triple lock was introduced in 2010 when the coalition government pledged to increase the state pension each year by the highest of the previous September's CPI figure, the average annual wage increase, or by 2.5pc. 

Many retirees are wholly reliant upon their state pension. According to the National Pensioner Convention (NPC), almost half (5.5 million) of UK pensioners have incomes below £12,500. A further 5.9 million are taxed at the basic rate, while just 545,000 pay higher rate tax. These figures suggest that, collectively, most pensioners who are homeowners could be justifiably described as asset rich but cash poor.   

The NPC argues that the state pension suffered a reduction in real terms when the formal link between pensions and average earnings was scrapped in 1980. The organisation points out that had the 'earnings link’ remained in place prior to the triple lock’s introduction in 2010, the weekly basic state pension would have been £161.30. Instead, it was £97.65, a 65pc shortfall.  

Triple lock critics point out that between 2001-21, the basic state pension rose by almost 90pc while average earnings increased by 72pc. In absolute terms, however, while the average state pension rose to £7,155 a year, average annual pay increased to £29,692.     

The Autumn Statement afforded Mr Hunt an opportunity to calm financial markets. There were no unfunded commitments, but can the triple lock pledge remain indefinitely?  

Political observers maintain that there is no chance of any amendments taking place before the next general election, possibly in January 2025. Any attempt by the government to move away from the triple lock could alienate millions of prospective Conservative voters. Yet over the longer term, it’s possible that state pension entitlement will eventually become means-tested, particularly if enhanced life expectancy continues to be a feature of modern-day life.  

In addition, we have a pay-as-you-go pension structure (i.e., current pension payments are made to retirees from taxes paid in the form of current workers’ NIC) – an arrangement which is unsustainable in its present form.   

Analysis suggests that without significant investment the state pension pot will run dry in 2033, which virtually guarantees that pension provision will become increasingly selective. Finally, there is every probability that the age at which people become entitled to draw a state pension will continue to rise. Some pension experts maintain the official retirement age could reach 70 by the mid-2050s.   

Introducing a double lock – linking the state pension to average earnings with a temporary link to inflation if it exceeded wage growth – is a scenario which could ensure that annual increases in pension payments rarely, if ever, topped rises in wages. This could become an attractive political alternative once inflation starts to fall as forecasted.  

Mr Hunt and his colleagues will be delighted that for now the government can effectively raise taxes (by freezing tax allowances) and still keep 11.9 million grey-haired voters relatively content. Yet older homeowners who see the writing on the wall may wish to consider how best to avoid being treated as a political football and generate funds which are independent of the state pension.  

Releasing equity from the home in the form of lump sum is an alternative which has proved attractive to hundreds of thousands of people aged 55 and above. Moreover, every penny released is tax-free and there are no mandatory monthly repayments to make. Accessing a proportion of your property’s accumulated wealth may reduce the value of your estate and affect your entitlement to means-tested state benefits.  

Fortunately, a qualified adviser can provide further details plus a personalised illustration outlining the best equity release options to suit most circumstances. Equity Release Supermarket (ERS) is an independent provider of equity release services. All of the company’s advisers are qualified and can search the whole equity release market to determine what is best for their clients.  

In addition, the ERS website contains a series of handy tools designed to help you do your own research in your own time. This includes smartER™, which searches the whole market in real-time to provide you with personalised results, only displaying equity release deals for which you’re eligible.  

There are no restrictions on how you may wish to use the tax-fee money, but many older homeowners have used it to improve their retirement finances. Following the chancellor’s Autumn Statement, it’s possible that many people will follow in their footsteps.  

For more financial advice, check out Peter Sharkey’s regular blog, The Week In Numbers.

This column is for general information only and cannot be relied on as financial advice for individuals. Consult your professional adviser.