When the government announced in September 2021 that it was suspending the “triple lock” pension formula, the Isle of Wight was set to be one of the worst hit parts of Britain. Indeed, according to The Mirror’s overview of the 2022/2023 changes, the Isle of Wight ranked 13th on its list of 30 most-affected areas.
The criteria used to determine the “worst hit” was based on the number of retirement-aged people within the constituency. As per The Mirror’s statistics, there are 38,158 people of pensionable age in the Isle of Wight. In statistical terms, that’s 26.9% of the population. By this measure, more than a quarter of the people in the Isle of Wight may not see their state pension payments increase as much as expected in the 2022/2023 tax year.
What is the triple lock pension?
The triple lock pension formula was introduced in 2010 as a way of making sure pension payments increased in line with the cost of living. It’s known as a “triple” lock because the increase is based on the highest of the following three criteria:
• Inflation (measured by the Consumer Prices Index).
• The average wage increase.
• A set increase of 2.5%.
Triple lock formula no good after the pandemic
Work and Pensions Secretary Therese Coffey said in September 2021 that the “average wage increase” criterion would be disregarded for 2022/2023. This is due to concerns that average earnings would be artificially higher due to the economy restarting after the COVID-19 pandemic. Indeed, had this criterion been left in place, pension payments could have increased by 8%. Coffey and the government believed this was unsustainable and, therefore, suspended the triple lock formula for a year.
Charities representing the elderly have told the BBC that the suspension is a concern. Not only does it affect those already reliant on the state pension, but it could also set a precedent. Indeed, if the formula is scrapped for good, it could see state pension payments increase at a slower rate than in previous years. However, for those who can manage it, there are ways to counteract any potential changes to the way state pension payments are calculated. Personal pension schemes have become more accessible in recent years thanks to the internet. Today, it’s possible to do online and not only set up a tax-efficient self-invested personal pension (SIPP) but maintain your account with your phone.
Managing your financial future
For example, a SIPP account with Freetrade allows to you claim tax relief up to £40,000 per tax year. What’s more, you get to decide how you invest your money. The online platform features monitoring tools so you can check the performance of your investments, as well as market insights, but the main benefit of opening a SIPP account is the level of control you get over your investments.
Yes, there are tax benefits. However, you decide which stocks and funds you put your money into. If you want to try some high-risk investments, you can. If you want to use a low-risk strategy, that’s possible as well. The other benefit of a SIPP is that you can start drawing your money when you hit 55 (increasing to 57 from 2028) without any penalties. Therefore, you may also be able to plan for retirement at an earlier age if you have a SIPP.
Changes to the triple lock pension formula have the potential to affect a significant number of locals. However, if you can think ahead and find ways to not rely so heavily on the state pension, any future changes might not be as poignant. SIPPs aren’t right for everyone, and no investment is ever guaranteed. However, the latest changes to the state pension are an example of why it’s best to take control of your finances whenever you can.
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