How the State Pension triple lock suspension could hurt women more

October 2021

The financial effects of Covid have probably touched all of us at some point, whether it’s the market drop in March 2020 and subsequent recovery, or the rise in inflation and energy prices.

There’s another way the pandemic has impacted the economy which, while more subtle, could have implications for many pensioners across Britain: the artificially high earnings growth rate in 2021.

Millions of UK workers saw their income reduced during lockdown as they were on the furlough scheme, then returned to their normal salary when they returned to work. As a result, an artificial surge in average UK wages was created, with the Office for National Statistics revealing it reached 8.3% in September 2021.

As a result, the government suspended its “triple lock” method for calculating how much the State Pension will increase each year. Read on to discover why the suspension happened, what it could mean, and why it may have a greater impact on women.

The triple lock helps ensure the State Pension keeps up with living costs

The triple lock ensures that the State Pension rises in line with the highest of the below criteria:

  • A flat increase of 2.5%
  • Average earnings growth year on year
  • Rate of inflation

Introduced in 2010 by the then coalition government, it applies to the former basic State Pension (pre-April 2016) and the new State Pension (post-April 2016). According to the Times, the triple lock has recently come under fire from some economists who claim it’s too expensive to maintain in the wake of the government borrowing during Covid.

An artificially high average earnings growth resulted in its suspension

Economists’ concerns seemed to come to fruition when the government confirmed in September 2021 that it would suspend the triple lock calculation for the 2022/23 tax year increase. The one- year “suspension” was announced following government concerns about the high average earnings growth rate, which would have meant the State Pension being increased by more than 8%.

Instead, the government will only use the flat increase of 2.5% or inflation to determine the State Pension’s increase for 2022/23. The government pledged to reintroduce all three criteria for the following year and said it would continue to use all three for the rest of its time in parliament.

The suspension could leave pensioners worse off in the long term

To show this, let’s consider the fact that the State Pension provides £9,350 a year if you retired after 2016 with 35 years of National Insurance contributions (NICs). If the government had raised the pension by 8.3% it would have risen to £10,126 in April 2022. However, if the 2.5% flat increase is used instead, the pension will rise to £9,584 a year.

This reduction, the Telegraph claims, could leave pensioners £12,986 worse off after 19 years.

The suspension could hit women harder than men

While this could be bad news for some people, it might hit women hardest. This is because, in retirement, females are typically less well off than men for the following three reasons:

       1. Pension gender gap

      Women are more likely to face events that could impact their salary, such as stopping work to look after children. This means they make lower contributions towards workplace pensions, which could result in a lower income in retirement. It’s little surprise that research by Aviva reveals that women are typically £7,500 a year worse off than men in retirement.

       2. National Insurance contributions

      Stopping work to raise a family could also mean a break in a woman’s National Insurance contributions (NICs). As the contributions go towards the State Pension, this has the potential to leave women with a smaller pension, despite potentially being financially insecure because of a smaller private and workplace pensions.

       3. Divorce

      A pension could be one of the most valuable assets within a marriage. That said, a study by Legal & General found that nearly one in four people waive their rights to an ex-spouse’s retirement fund even though it puts their future financial security at risk.

Because of these factors, more women are likely to be reliant on their State Pension, and therefore harder hit by the triple lock suspension.

Get in touch

Making sure you have an adequate pension to maintain your and your family’s lifestyle in retirement cannot be overstated. It could provide peace of mind that you and your spouse will have the financial security to enjoy your retirement, and not be reliant on the State Pension.

If you are a woman, speaking to your financial planner to confirm how much your pension could provide, and any action you may need to take to ensure it does, could be critical. This could help you build a retirement fund that may keep you in the lifestyle you would want, and not be dependent on the State Pension.

If you would like to speak with your financial planner about this, please contact them directly. Alternatively, contact us below.

Please note

This article is for information only. Please do not act solely based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.

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