Financial Planners have welcomed Prime Minister Andy Burnham’s announcement yesterday that he plans to axe the Pensions Triple Lock from 2030.
The Prime Minister announced his plans at the Labour Party annual conference on Tuesday in a move that shocked many.
Mr Burnham told the conference that the Triple Lock would be replaced with an annual double lock mechanism to ensure the State Pension keeps up with prices.
The annual double lock will mean the State Pension rising each year in line with the highest of prices or 2.5%.
He plans to use the billions that the government expects to save to help fund a new national care service.
Jane Reade, head of Financial Planning at The Private Office, said retaining a double lock would provide comfort to pensioners and welcomed the move to direct resources towards the care system.
She said: “Retaining the inflation link will be comforting to current and future pensioners and, if giving up the earnings link provides savings which can be directed towards the chronically-underfunded care system, then this will be welcomed by many.
“However, the devil is always in the detail and we eagerly await the promised detail in the next Parliament.”
Charlotte Kennedy, Chartered Financial Planner at Rathbones, said scrapping the Triple Lock underlined a continued move away from state funded retirement towards individual responsibility.
She said: “Few would dispute the need for social care reform, but many will be asking what this means for the future value of the State Pension. For future generations, the expectation is increasingly that individuals will need to take greater responsibility for funding both retirement and later-life care themselves.
However, she welcomed plans to address the costs of later life care: “The focus on social care is particularly significant. While care provision is becoming a bigger policy priority, many people still aren't planning for it financially. Our research found that 40% of affluent UK adults rank the cost of long-term or residential care among their top three retirement concerns, yet 45% have not factored potential care costs into their retirement planning at all.
“This points to a significant planning gap. People often focus on building enough wealth to stop working, but retirement planning should also consider what happens if health deteriorates or care is needed later in life. The risk is that people are planning for retirement, but not necessarily planning for later life."
Iain McLellan, director at pension specialist adviser Isio, said that the Prime Minister may be risking ‘political kryptonite’ but the debate needs to happen as the triple lock is not sustainable.
He said: “The State Pension Triple Lock has long been the elephant in the room. While it has played an important role in protecting pensioners’ incomes, most economists and actuaries recognise that maintaining it indefinitely raises difficult questions about affordability and intergenerational fairness.”
Adam Cole, retirement specialist at Financial Planner and wealth manager Quilter, agreed that a debate on the future of the Triple Lock needs to be held.
He said: "Andy Burnham's decision to confront the increasingly difficult question of whether the Triple Lock is sustainable in its current form marks the beginning of a debate that has been postponed for too long.
"The Triple Lock has undoubtedly succeeded in improving pensioner living standards and protecting retirees through periods of high inflation, but growing longevity, demographic pressures and rising State Pension costs mean questions about its long-term affordability and sustainability can no longer be avoided. For too long, reform has been tossed from government to government like a hot potato that no one wants to keep."
More details on the Prime Ministers plans to scrap the Triple Lock will be shared by the end of spring 2027, when the Pensions Commission’s final recommendations on the sustainability, adequacy and fairness of the UK pension system are due.
John Ditchfield, founder and CEO of Harmonic Financial Planning urged the government to tie the Triple Lock changes to wider workplace pension reforms.
He said: "We should welcome the end of the pensions triple lock from 2030, a policy that unfortunately has become totally unaffordable. But the government must use this moment to bring in wider reforms including a second wave of workplace pension reforms to support a generation of forgotten savers including the UK’s four million strong self-employed.
"The evidence is very clear, we need an auto enrolment equivalent for the self-employed combined with greater consumer awareness around pension savings.”