Why the “triple lock” could significantly boost your retirement income
While you probably have a private or workplace pension that provides an income in retirement, there’s another source of money that may be more important to your finances than you realise.
It’s your State Pension, and while it may seem relatively insignificant, it could provide up to £9,627.80 a year in 2022/23.
The State Pension could be an important part of your financial retirement strategy, and why an article by FTAdviser could be particularly welcome.
The article reveals that the government intends to reinstate the “triple lock” when it calculates how much State Pension it will pay in 2023, after suspending it this year.
This could provide a significant boost to your pension income, which could help you deal with the skyrocketing cost of living. Read on to discover how the triple lock works, why it could substantially increase your retirement income, and how to check that you’re receiving all the State Pension you’re entitled to.
The triple lock ensures the State Pension rises in line with inflation
The triple lock was introduced in 2010 to make sure your State Pension reflects the rising cost of living. It does this by increasing the amount the government pays each year by the highest of:
- The percentage rise in average earnings
- Inflation, as measured by the Consumer Price Index (CPI).
The government froze the triple lock for 2022/23 after average earnings rose by 8% in the wake of Covid lockdowns. Because of this, the then chancellor, Rishi Sunak, increased the State Pension by 3.1%, which was the CPI figure in September 2021.
Since then, inflation has continued to rise, with the Office for National Statistics reporting that CPI reached 9.1% in May 2022. Instead of suspending the triple lock again though, the government has confirmed that it intends to reinstate it.
The triple lock could mean a double-digit increase to your State Pension
While you receive your increased State Pension in April each year, the increased amount is calculated in the previous September. This means that the CPI rate in September 2022 is something you probably want to pay close attention to.
If inflation reaches 10%, as many experts predict, your State Pension could increase by more than £960 if you’re in receipt of the full amount. This might mean you receive £10,590 a year in 2023/24, or more than £21,000 for a married household.
While this is good news, you should remember that when you received your 3.1% increase in April 2022, inflation was 9%. This meant that your pension lost value in real terms, something a significant increase next year could help to counter.
That said, if you’re not entitled to a full State Pension you may not receive all the benefits of a triple lock increase. That’s why checking whether you are, and taking action to boost your State Pension if you can, could be a shrewd move.
You need 35 years of National Insurance contributions
To receive the full amount of State Pension, you will need to have 35 “qualifying years” of National Insurance contributions (NICs). If you have less than 10 years of NICs, you typically won’t receive a State Pension.
If you have made “qualifying contributions” of between 10 and 35 years, the amount payable is calculated based on your number of qualifying years. You’ll also need to consider any time you spent contracted out of NICs, as well as any additional contributions you might have made via the State Second Pension or SERPS.
You can visit the government website to check how many qualifying years you have. There is good news if you don’t have 35 years of qualifying years though, as you may be able to boost them using Class 3 NICs, which are voluntary contributions.
If you are self-employed you could use Class 2 NICs, which are also voluntary. That said, as rules apply to both Class 2 and Class 3 NICs, you should speak to a financial adviser to ensure you get the most from doing this.
Get in touch
According to Which?, 30% of people overestimate the amount of State Pension they will receive. That’s why it’s important to work with a financial adviser, as they’ll be able to confirm how much you are entitled to, and ways to potentially boost it.
If the latter is not an option, an adviser can help provide other solutions that could ensure you have the level of income you need to enjoy the lifestyle you want in retirement.
Please feel free to get in touch on 0800 434 6337 if you would like to discuss your State Pension and how it could fit into your retirement strategy.
This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
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.