The viability of the state pension triple lock was recently brought into question by former pensions minister Ros Altmann when she said it had “outlived its purpose” and should be reviewed.
The pensions expert, who left her position in Theresa May’s cabinet reshuffle, said the guarantee that pensions should rise by 2.5% should be dropped from 2020.
The triple lock policy, which has been in place since 2010, means state pensions rise in line with inflation, average earnings or 2.5%, whichever is highest. The government has said it is committed to the guarantee until 2020 and there are no plans to review the policy.
However, Altmann pointed out the cost to the taxpayer would be “enormous” should it continue past that date. She described it as a political construct and “totemic policy”.
RP asked advisers whether they thought the policy as a whole should be scrapped. Just under half, 48%, said ‘yes’; 44% said ‘no’ and the rest, 8%, were unsure.
Of those who said ‘yes’, many said admitted they were reluctant to remove the guarantee but economic conditions meant it logically had to happen.
One said: “A guaranteed 2.5% increase is not sustainable when there is zero inflation and the country will have reducing revenues to fund it post-Brexit.”
A second added: “Ideally it should not be scrapped. However, given the current environment we are in and the impending issues post-Brexit I think it needs to go.
“If working people suffer through higher taxes, higher unemployment then this needs to affect retirees too. “
A third commented: “It is clearly not affordable for the country and it is very unfair to leave the younger generation to pay for those who have had the best of everything in work, pension and home ownership.”
Others raised concerns about long-term affordability and the shift to a flat-rate state pension making it “less necessary”.
However, many who said ‘no’ were keen to avoid a race to the bottom.
“As one of the wealthiest countries on earth, we should be raising our pensions to levels in other forward-looking countries. 2.5% isn’t a ridiculous expectation,” said one adviser.
Another added: “More and more people will rely on the state pension to be the bedrock of their planning following the demise of final salary pensions for the majority of UK citizens.
“If this triple lock isn’t used then the likelihood is we would need to support retirees anyway by more expensive methods such as the failed pension credit system. Potentially, if it were to rise to a certain level, a review may mean a less generous system will be needed.”
Others were keen to point out people had worked all their lives, paid into the system and deserved a decent payout from the state.
Double trouble
Altmann suggested a move to a double lock system where pensions rise in line with either average earnings or inflation, without a 2.5% guarantee. Almost half of advisers surveyed by RP agreed with her suggestion, with 48% backing the “sensible” idea. In a mirror of the previous question’s result, 44% said ‘no’ to the double lock idea and 8% were unsure.
One adviser who agreed with the double lock said: “This is more logical even if rises may be relatively small some years.”
Another commented: “This will keep the real value of the pension but also allow a share of general prosperity.”
However, many who said ‘no’ were more vocal: “Any link to wages should be based on what is affordable to the country as a whole, maybe the pensions should increase in line with health service workers, so there is a fair link between those in work and those on pensions.”
Another said: “Inflationary increases are more than enough – with all the other pensioner perks and no National Insurance taxation, pensioners do not need to be kept up with average earnings as they don’t pay so many taxes that earners do.”
A third added: “Let’s scrap this idea of automatic and guaranteed increases. Interest rates are down and falling, cost of living is flat/falling so why should government finance rises?”
“Once a reduction is applied there will be a precedent to reduce it further,” warned one respondent.
Delay until another day?
RP then gauged adviser opinion on whether clients should delay taking the state pension in order to boost benefits in later life, a move previously backed by providers such as Fidelity.
We asked advisers if they had recommended this strategy to clients. Some 45% said ‘yes’ while 55% said ‘no’.
Many advisers pointed out the terms of delaying the state pension had changed recently and were now less favourable to clients. Several also pointed out it would be down to individual circumstances.
“I did do so, but it is not now attractive. Assuming a client is still working it is better to take the state pension, pay the tax, but then reinvest it as a net pension contribution,” explained one adviser.
Another said it was advantageous for higher-rate taxpayers to delay: “The client was a doctor who was still working part-time and was a high rate taxpayer. She didn’t need the income and therefore there was no point in having it taxed at 40%. When she does eventually stop work, she will be a basic rate taxpayer and will take her state pension then.”
Of those who said ‘no’, many admitted they did not trust the government to keep the rules as they are.
“Governments have proven repeatedly that they can’t be trusted with the state pension, or with pension legislation generally,” said one.
A second added: “Life is too short. Take what you are owed and respect the fact you wake up every morning as there is no guarantee.”
Another adviser told RP while they had considered advising clients to delay taking the state pension it had been difficult to justify or convince people “in the face of other potentially more attractive solutions”.
“The increase doesn’t warrant the loss, in my opinion,” one adviser said. “Sacrificing your pension for a single year means a loss of thousands and it will take far too many years to make up this loss in my view, especially as there is no guarantee you will live long enough.
“It simply doesn’t make sound financial sense, so I have advised clients not do delay but simply to take the money and reinvest it if they don’t need it.”
Finally, RP asked advisers for their take on the Women Against State Pension Inequality (WASPI) campaign, specifically, whether the government should give women born in the 1950s additional help as their state pension age increase had been increased quicker than originally planned.
Some 34% of advisers said they should get additional help, 30% said they shouldn’t and the rest, 36%, were unsure.
Many advisers agreed the way women born in the 1950s had been treated was wrong.
One said: “Had governments brought this in at the beginning, they would have been able to spread it over 30 years (being two months per annum) which would have made it fairer and more equitable.
“Therefore, as a nation through our elected government’s failures, these people who had worked and placed to retire at 60 should receive a pension from when they would have retired – especially if they are in ill-health.
“Working later is okay for some but there are greater problems with physical work as we get older. Again we should be seen to do the correct thing and not argue the unarguable. We got it wrong as a nation.”
Another added: “This cohort of women have been treated very unfairly, and the goalposts have not just been moved, they have been taken to an entirely new stadium without giving enough prior warning or time to adjust. Simply awful. The government is not abiding by treating Customers Fairly.”
However, others were not so generous: “If the world wants to be gender neutral, it then needs to take this into account and thus make it a level playing field.”
A second added: “We have known the bulk of this since 1995. The worst case is that an extra 18 months has been added on to the original timescale.
“I have no sympathy whatsoever for those women who have been wantonly, or deliberately, ignorant of the ever increasing state pensions ages – for both men and women. Remember, in law, ignorance of the law is no defence. To have relied solely on state pension provision is also reckless on the part of those women who did so. Basic means basic provision.”
Giving a more balanced view, another IFA said: “If you help those born in the 1950s what do you do about those born in 1960? What the government should do is re-think the whole process, and offer a reduced pension for early retirees like company schemes offer based on actuarial rates.”
“It is realistically too late,” another adviser warned. “The wheels are already in motion and the costs would be considerable to change. It does demonstrate that if the Financial Conduct Authority were to regulate the actions of government instead of the financial services industry it would have much more bad behaviour to take action against. Never trust the words of politicians.”
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