Why Was the Triple Lock Suspended and Does This Affect My Self-invested Pension?

George Ttouli is the Principal at Burlington Wealth Management Ltd. In this article, he talks about the triple lock suspension and its effects.

Firstly let me explain what the triple lock was. Some readers will know this was the system used by the government to determine the annual increase of the state pension.

It was announced in early September by Therese Coffey, the Work and Pensions Secretary, that the triple lock is to be suspended for 2022/2023. Instead it will be replaced by what has been termed the double lock.

There is therefore no connection between the triple lock and a self-invested scheme such as a SIPP or a SSAS. Most of our clients who are motivated property investors understand the benefits of holding property in a self-invested scheme. The amount of jargon in pensions is unbelievable and I have joked previously that pensions have their own language. It’s therefore no surprise I was recently asked by a SIPP investor to explain the effect of the triple lock.

Apart from SIPP and SSAS, in all types of money purchase pensions – whether they are private plans or group plans started by an employer – the ultimate benefit is determined by the success of the investment strategy. The term money purchase refers to how much income can be purchased by the money in the pot. In the current climate of flexible drawdown pensions, the majority would simply invest carefully (sometimes continue holding commercial property that pays a decent rental yield) to generate income to draw from the pension. The triple lock therefore is totally irrelevant to them.

The triple lock meant the government would increase the state pension each year in line with whichever of the following three indicators is the highest: inflation measured by the consumer price index (CPI), the average level of wage increases, or simply by 2.5%. The new double lock has removed the average level of wage increases and for the moment going forward, state pension will only rise by the higher of CPI or 2.5%.

This is interesting because during the global pandemic and due to implications of the furlough scheme, a large number of people have been returning to full pay. As a result the average rise in earnings is estimated at 8% for the year ending July 2021.

Under the rules of the triple lock, this would have meant that every person receiving a state pension would have had to have it increased by 8%. That’s a difficult situation for the government especially as it is trying to curb spending after the cost of the pandemic. So the result of this announcement is yes, state pensions will increase but not by 8% across the board.

If anybody has questions about their state pension or any type of pension, please feel free to contact me.

George Ttouli is a qualified financial adviser at Burlington Wealth Management and is available to discuss any financial matter. If you wish to arrange a private consultation, please call the office on (020) 8882 6688 or send an email to george@burlington.uk.net.