Lowes Magazine Issue 127

PENSIONS

Nothing certain but death and taxes

The adage ‘There is nothing certain in life but death and taxes’ has certainly stood the test of time since it was first recorded in the 18 th century. It was said most famously by American statesman, Benjamin Franklin. What is less certain is money given out by governments. State pension costs are set to increase significantly over the next five years as the number of people claiming the state pension will rise from 12.6 million to 13 million. Influencing the figure is greater longevity amongst the UK population – although a proposed rise in the age at which state pension can be claimed to 68 years was recently postponed by government due to longevity figures slowing down. Also to be taken into consideration when assessing the cost, is that the state pension payments are met from the NI and tax contributions of the working population. Currently, there is an imbalance between the number of people at or heading for state pension age and those in employment. As the costs rise, we could see governments revisit the proposed increase to the state pension age, but more likely is a review of the Triple Lock. This was brought in over a decade ago to safeguard against the state pension losing value due to inflation. It ensures pensioners receive the highest of either a flat 2.5%, the increase in average earnings, or inflation measured by the Consumer Prices Index. The government suspended the Triple Lock for the 2022 2023 tax year in favour of a double lock – based on 2.5% or the rise in inflation – reinstating it for the 2023-2024 tax year. The Triple Lock has also been criticised as being intergenerationally unfair, with calls for it to be seriously reviewed or even abolished.

Recently, both the Conservative and the Labour parties have said they will keep the Triple Lock if in power after the next general election. However, at times of high inflation – price and earnings – we may see changes to the terms, or a higher state pension age back on the agenda. These fluctuations and potential changes in government policy affect financial planning for retirement. While still a foundation stone within financial planning and future cashflow analysis, the state pension could be less reliable than it has been in the past. This is one reason why we recommend that personal pension provision forms the backbone of our clients’ financial planning. As tax efficient wrappers for long term investment, pensions – whether final salary, personal pensions provided by assurers, or self-invested pensions plans (SIPPs) – have stood the test of time and remain the most successful form of saving for retirement. A sound pension strategy, combined with investments and other assets can be used successfully to generate and deliver income in retirement. Which type of pension is best and where it is invested, will depend upon individual circumstances, and this is where Lowes Advisers can help. Which type of pension is best and where it is invested, will depend upon individual circumstances, and this is where Lowes Advisers can help. “ ”

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