What the triple lock could mean for your State Pension in 2023
Your retirement income will probably come from more than one source. As well as your workplace pension, you might have ISA investments or rental income from buy-to-let properties.
But it’s important not to forget your State Pension too.
While it might not be the biggest portion of your retirement income, the regular, inflation-proofed amount is a solid foundation to build on.
This could be especially true this year, thanks to the reintroduction of the State Pension triple lock.
Keep reading to find out the difference it could make to the State Pension you receive.
Understand when you will receive the State Pension and how much you might get
The current State Pension Age is 66 but increases are planned. The age will rise to 67 for those born on or after April 1960. Between 2044 and 2046, those born on or after April 1977 will see the age rise to 68.
Be aware, though, that a government review is currently underway to bring this latter increase forward. If the plan goes ahead, the rise to 68 could happen seven years earlier – between 2037 and 2039 – and affect anyone born in the early 1970s.
For the 2022/23 tax year, the new State Pension amount is £9,627, or £185.15 a week. To receive this amount, you’ll need 35 “qualifying years” of National Insurance contributions (NICs).
If you have less than 10 qualifying years, you won’t receive any State Pension. With between 10 and 35 years, a calculation will be performed based on the number of years.
Deciding whether a year has “qualified” or not isn’t always easy!
The State Pension triple lock inflation-proofs your income
Usually, the State Pension rises each year to prevent the value of the pension from decreasing as wages and inflation rise.
This is known as the “State Pension triple lock”.
The rise is usually calculated each September and applied at the start of the next tax year. The rise is based on the highest of these three factors, hence the reference to the “triple” lock:
- Average earnings growth
For the 2021/22 tax year, the triple lock was abandoned, and replaced by a “double lock”.
This was due to an anomalous rise in average growth caused by the furloughing of workers during Covid. With many workers on 80% pay during 2020/21, the mass return to work that followed saw wages increase massively, leading to a potential rise to the State Pension deemed as “unfair”.
The reduction to a double lock, though, was meant to be temporary. The reinstatement of the triple lock could lead to another potential windfall for pensioners. The factor in play this time isn’t wage growth, but inflation.
The cost of living has been on the rise since the end of lockdowns in 2021. With inflation for the 12 months to July 2022 at a 40-year high of 10.1%, the increase could be huge.
Not only that, but the Bank of England (BoE) is predicting inflation could peak at 13%.
This could increase the State Pension for 2023/24 to £10,685, or £205 a week.
Consider how you’ll factor the State Pension into your plans
As we’ve already said, the State Pension is unlikely to be your main source of retirement income. Hopefully, your plans include workplace or private pensions, and possibly income from non-pension sources.
Knowing you have a regular, inflation-proofed income coming in, though, could mean you can be freer with your other income.
You might decide to use some or all of your State Pension entitlement to cover fixed expenses like household bills.
This might give you the option to take your other pensions more flexibly.
Pension Freedoms legislation massively increased your options at retirement, allowing you to take lump sums and flexi-access drawdown. These both give you the option to withdraw funds only when you need them.
In periods of high inflation, this has two main benefits.
Withdrawing only what you need, when you need it, prevents you from holding excess funds in cash accounts where its real-terms value could be depleted. It also allows you to keep the remainder of your fund invested, with the possibility of investment returns (albeit with the risk of market drops).
Get in touch
The State Pension, if utilised correctly, can be a crucial cog in the wheel of your retirement. If you’d like to know how much you might be entitled to, and how the State Pension is factored into the long-term plans you hold with us, speak to us now.
Please email us at email@example.com or check with your adviser.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.
Workplace pensions are regulated by The Pension Regulator.