It may have disappeared over the horizon, a departure mourned by few, but history will remember 2022 in part for its intense, febrile political atmosphere and an inherently flawed voting system which produced three Prime Ministers, four Home Secretaries and four chancellors of the exchequer, says Christine Hallett, managing director of Options UK.
Fortunately for UK prime minister Sunak, in mid-November the fourth Chancellor of 2022, Jeremy Hunt, signalled that the feverish atmosphere had cooled dramatically and, moreover, he was not prepared to commit political suicide.
Instead, he confirmed that the government would adhere to the state pension ‘triple lock' promise, increasing payments by 10.1% from April 2023, in line with last September's inflation rate.
The triple lock was introduced in 2010 when the Coalition government pledged to increase the annual state pension by the highest of the previous September's CPI figure, the average annual wage increase or 2.5%.
Many retirees are exclusively 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. When measured in terms of annual income, as opposed to assets, pensioners are not an affluent demographic.
Indeed, the NPC argue that the state pension suffered a reduction in real terms from which it has not recovered 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 reached £161.30; instead it stood at £97.65, a 65% shortfall.
Triple lock critics, who believe that Chancellor Hunt's ‘generosity' should have been curtailed, point out that between 2001-21, the basic state pension rose by almost 90% while average earnings increased by 72%. In absolute terms, however, while the average state pension has risen to £7,155 a year, average annual pay is now £29,692.
The Autumn Statement afforded Mr Hunt an opportunity to calm financial markets which he took with aplomb. There were no unfunded commitments, no policies likely to undermine a fragile confidence, but can the triple lock pledge remain indefinitely?
There appears to be absolutely no chance of any amendments taking place before the next General Election in late 2024 or early 2025; any attempt to move away from the triple lock could alienate millions of prospective Conservative voters.
Yet over the longer term, a number of peripheral influences could result in the triple lock's cost becoming less onerous, thereby reducing the requirement for governmental intervention.
For example, it seems likely that state pension entitlement will eventually become means tested - as it was when first introduced in 1909. A combination of enhanced life expectancy, a Ponzi scheme-style pay-as-you-go pension structure, plus detailed analysis prepared by government actuaries which suggests that without significant investment the state pension pot will run dry in 2033, virtually guarantees that eventually pension provision will become increasingly selective.
In addition, as we saw in late January when the Treasury mooted the idea of raising the retirement age to 68 by 2035, it appears certain that the age at which people become entitled to draw a state pension will continue to rise. Some pension experts maintain that the official retirement age could reach 70 by the late-2040s. History reminds us that when first introduced in 1909, ‘old age pensions' were paid only to those who had reached the age of 70.
Introducing a ‘double lock' which linked 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, exceeded rises in wages. This could become an attractive political alternative should inflation start to fall as forecast later this year.
"Governments of every hue have regularly tinkered with the state pension and plans are afoot to extend the official retirement age over the next few decades. However, with the current full pension worth just £185.15 a week, many people are understandably concerned about how they may beat a burgeoning pension squeeze," notes Christine Hallett, Managing Director of Options UK, the independent pensions provider.
"The importance of pension planning is not lost on many people in their 40s, 50s and 60s and for those not already making some form of independent pension provision, doing so could become a belated, yet hugely important new year resolution," adds Hallett.
Meanwhile, Mr Hunt and his colleagues will be delighted that for now at least the government can effectively raise taxes (by freezing tax allowances) and still keep 11.9 million grey-haired voters relatively content.
If the Chancellor's actions eventually translate to what remains an unlikely-looking election victory either next year or in 2025, last November's Autumn Statement will be seen as marking a significant turning point in Conservative party fortunes. For those not wishing to leave pension-related matters to chance, seeking independent pension advice makes enormous sense.
By Christine Hallett, managing director of Options UK
