Jeremy Hunt, the chancellor of the exchequer, is set to deliver the autumn statement on Wednesday. Speculation about inheritance tax, ISAs, and national insurance has dominated the news, but the statement may also have significant implications for pensions.
One area of interest is whether the government will commit to increasing the state pension in accordance with the triple lock rules next year. The triple lock ensures that the state pension increases by the highest of 2.5%, inflation, or average wages. Despite falling inflation, wage growth has been substantial, meaning that if the triple lock is used, state pensioners could see an 8.5% increase next year.
For individuals receiving the full new state pension, this would result in an increase from £203.85 to £221.20 per week. For those who reached state pension age before 2016, their full weekly basic state pension would rise from £156.20 to £169.50.
However, such a significant increase poses challenges for the government in managing the cost of this benefit. One option is to adjust the triple lock and adopt a lower figure. For example, the 8.5% wage figure has been inflated by bonuses given to NHS and civil service workers. By excluding the impact of these bonuses, the figure is closer to 7.8%. Alternatively, the government could choose to use the relevant Consumer Price Index (CPI) inflation figure, which stands at 6.7%.
The government has previously made adjustments to the triple lock, such as during the pandemic when wages data was affected by the furlough scheme. However, given the upcoming general election, the government may opt to maintain the triple lock.
Another topic of interest is the proposal for a Lifetime Pension, which would allow savers to keep one pension pot throughout their entire working lives. This would simplify pension tracking and engagement with retirement planning.
Additionally, more details are expected regarding the government’s plans to enable pension schemes to invest in illiquid assets. This initiative aims to encourage investment in non-traditional assets, such as shares of unlisted companies, with the goal of boosting the economy and pension pots. The government estimates that this could increase a typical earner’s pension pot by up to 12% over their working life.
However, concerns have been raised that these investments may lead to higher fees and potentially lower returns for pension scheme members. Further clarification on how the government plans to address these concerns will be eagerly awaited.
In conclusion, the chancellor’s autumn statement holds the potential for significant developments in the realm of pensions. From potential increases in the state pension to the introduction of a Lifetime Pension and the promotion of investments in illiquid assets, this statement could shape the future of retirement planning in the UK.