Verum Wealth Autumn 2021

Pension triple lock falls to double Next April’s increases to State pensions will now follow a less expected, and less expensive, path. What percentage increase should apply to State pensions in 2022? For all but the old basic State pension and the new State pension the answer is simple: the annual rate of CPI inflation to September 2021. For the last ten years, however, the triple lock has applied to the basic and new State pensions, meaning the increase has been the highest of the CPI change, earnings growth or 2.5%. From the 2015 election onwards, all the major political parties signed up to maintaining the triple lock, although there is no legislation behind it. The law simply links the two pensions to earnings growth. Even that is not straightforward, because the method of measuring earnings growth is not spelled out but instead left as a decision for the Secretary of State at the Department for Work and Pensions (DWP). The practice in previous years has been to use the annual increase in average weekly earnings (including bonuses) in the May–July period. In 2020, there was no increase: Covid-19 meant a drop in earnings of 1.0% over the year. CPI inflation to September 2020 was only 0.5%, so the April 2021 increase was the 2.5% minimum. As the UK economy emerges from the pandemic, earnings have rebounded. Some of the rise stems from statistical quirks, such as fewer low-paid jobs increasing average pay, but the net result is dramatic. The latest (April –June) annual rise was no less than 8.8%. If that had been applied to the basic and the new State pension, the cost would have been over £4bn extra a year according to the DWP. A MANIFEST DIFFICULTY The Prime Minister was said to be reluctant to renege on his triple lock manifesto pledge. It was perhaps no small coincidence, therefore, that on the day Mr Johnson announced increases to national insurance contributions to fund health and social care reforms, the DWP revealed that next year’s basic and new State pension increases would take no account of earnings inflation: for 2022/23 only, the triple lock becomes a double lock. Assuming 3% CPI inflation, that means the new State pension will rise to about £185 a week, rather than the £195 that it might have been. Even the latter is still a long way from enough for a comfortable retirement. You can check a forecast of your expected State pension on www.gov.uk/check-state-pension . 2 As we settle into autumn after a difficult summer worldwide, challenging decisions on managing the fallout from the pandemic remain. Whether we will have a Budget this year is still uncertain, but there are a number of developments to continue to factor into your planning. One central issue for many is of course looking towards retirement. In our feature this issue, we look at the adjustments to end of work patterns made over the last year and consider the positives of a gradual transition from full time work to full time retirement. The Covid-19 support benefits, vital to many over the past 18 months, are coming to an end so we consider the benefits of income protection to help cover unforeseen events such as future health issues. And as the new intake of freshers arrive at university, we look closely at student loan schemes and repayment schedules – perhaps not as onerous as you may have thought. 03 Income protection – the simple safety net Insurance means you don't have to rely on State benefits 04 A new style retirement? Phasing the transition out of work is gaining popularity 05 Changes for the self-employed New and potential tax developments to bear in mind 06 The return of inflation? Implications of rising inflation for your investments 07 No-fault divorce Separation with no contest becomes law in 2022 08 Managing student finances Understanding the structure of student loans In this issue... This newsletter is for general information only and is not intended to be advice to any specific person. You are recommended to seek competent professional advice before takingor refraining from takinganyactionon thebasisof thecontentsof thispublication. Thenewsletter representsourunderstandingof lawandHMRevenue&Customspractice. © Copyright 8 September 2021. All rights reserved. PENSIONS Cover image: Air Images / Shutterstock.com Credit: llaszlo/ Shutterstock.com Credit: KENG MERRY paper art/ Shutterstock