Will Chancellor abandon pension triple lock in autumn Budget?
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The pension guarantee is under threat, says finance expert Peter Sharkey.
There will come a point where furloughed wages, business grants, Nightingale hospitals, financial assistance for the arts, bounce-back loans, restaurant vouchers and every other expense we’ve incurred over the past four months will need to be paid for.
In the short term taxpayers are likely to avoid income tax hikes, especially before the furlough tide goes out in October and many people find they’re either unemployed or, at best, working part-time.
The financial cost of reacting to and treating the pandemic already runs to hundreds of billions of pounds and while the government has had little option but to throw money at the problem, the time will arrive when our creditors knock on the door and demand payment.
Granted, everyone else on the planet is in the same boat, though ultimately taxpayers will pick up the tab, probably for decades to come, because this is no short-term dilemma but a long term problem that could easily erupt again.
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There is some consolation in knowing that every other nation (or at least those interested in balancing the books) faces similar problems, but short of a radical, unilateral upheaval of international economics, coupled with a global willingness to use deliberately planned inflation to eradicate most of the debt, the time will come when we need to extricate ourselves from the financial mire.
I don’t think I’ve ever written a gloomier introduction to an article, but it gets worse.
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Pensioners cannot expect to be exempted from carrying their share of the financial load. Many may be living on a state pension, possibly supplemented with an equally modest workplace pension, but regrettably, that will cut little ice when the bills start arriving and it’s all hands to the pump.
Indeed, following the Chancellor’s latest giveaway – and restaurant vouchers are as decent an idea as any – astute observers pointed out that in distributing his, sorry, our largesse, one announcement was conspicuous by its absence.
There was no mention of the pension triple lock, ie the guarantee that the state pension will rise each year by the highest of wage growth, inflation or 2.5pc.
Inflation is currently under 1pc, but the scale of wage growth forecast for next year comfortably exceeds 2.5pc, which has, apparently, persuaded the Chancellor to consider the triple lock’s longer-term viability. Pension experts insist that maintaining the commitment in its present form is simply not an option because it’s unaffordable; instead, they warn, Britain’s 12 million pensioners should brace themselves for bad news in Mr Sunak’s autumn Budget.
Nor will the removal or suspension of the triple lock be a temporary, pandemic-instigated, one-off. Sir Steve Webb, the former pension minister, believes it’s unlikely the commitment will survive in its current form for much longer.
Fortunately, pensioners and people on the cusp of retirement are not fools. Faced with a potentially radical change to their longer-term circumstances, most are attempting to pre-empt the autumn’s widely-anticipated bad news by doing something about it.
Accordingly, it seems likely that discussions regarding the benefits and disadvantages of downsizing will be discussed over a glass of wine in kitchens across the land. Many people have witnessed significant rises in their home’s value which could mean that selling and moving to a smaller, cheaper home, is a way of resolving retirement finance problems.
However, downsizing isn’t necessarily an ideal solution for everyone, either from a practical or an emotional perspective, which explains why there has been a marked increase in the number of people exploring the benefits and, for some, the drawbacks, of equity release during lockdown.
Even if you’re unaffected by any proposed change to the triple lock, an increasing cost of living over time could undermine your pension’s value, meaning it may not extend as far into retirement as you would prefer. A tax-free boost, achieved by releasing equity from your home, could help preserve a decent quality of life throughout your later years.
Like every other financial option designed to counter the adverse consequences of the pension triple lock being abandoned, equity release is a serious step. Seeking professional advice is, therefore, important because releasing equity could reduce the value of your estate and entitlement to means-tested state benefits. A qualified adviser can help you understand the potential impacts: it might be worth knowing what these are before the Chancellor stands up to deliver his autumn Budget…
If you’re concerned about possible forthcoming changes to the pension triple lock guarantee and are considering equity release, please get in touch. Thanks again to those of you who have already emailed. Please keep the emails coming, but note I cannot advise on the suitability of equity release to individuals. My email address is firstname.lastname@example.org .
Meanwhile, you can obtain an estimate of how much can you could release from your home by visiting: https://www.moneymapp.com/the-equity-release-calculator.
Drop Peter Sharkey a line!
Readers can email Peter Sharkey (and his team of equity release experts) to ask any equity release-related questions. Contact Peter by emailing: email@example.com
As many readers have already discovered, there’s a wealth of information to be discovered at: https://www.moneymapp.com/equity-release . In addition, there are hundreds of blogs and articles dealing with the subject on the Moneymapp website, including Peter Sharkey’s weekly blog, rated among the UK’s very best. Read more at: https://www.moneymapp.com/blog
You may still email any queries or questions regarding equity release to: firstname.lastname@example.org
Please note that neither Moneymapp.com or Peter Sharkey can advise readers on whether equity release is suitable for them. However, both Moneymapp.com and Peter can introduce readers to professional advisers who will explain the process and its implications for your estate and entitlement to means-tested state benefits.
For more financial advice, check out Peter Sharkey’s regular column, The Week In Numbers.