State pension: Triple-lock ‘no longer affordable’ says Ken Clarke
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Total wage growth (including bonuses) was a striking 8.8 percent between April and June this year, pushing mounting political pressure to the Chancellor’s doorstep as the Treasury faces an even steeper bill than anticipated.
Andrew Tully, technical director at Canada Life, said: “While next month’s earnings figure will be the deciding factor, this puts more pressure on the Chancellor to start finding another way around the issue without going against the party’s manifesto promise.
“The Government now has a difficult decision to make, to ensure the state pension remains affordable in what is a difficult time for the nation’s finances, while also bearing in mind it’s manifesto commitments. It’s important to remember that each 1% rise in state pension costs the taxpayer around £850m a year.”
Previous forecasts of eight percent caused Treasury officials to baulk at what this means for state pension rises.
But this ignores the far from generous standards of living that pensioners put up with at current.
Even if the current full state pension receives the extraordinary 8.8 percent increase –which itself is far from certain- that would still leave state pension income £654 a year short of the Minimum Income Standard.
The Minimum Income Standard is the annual income necessary to provide an acceptable minimum standard of living for a single pensioner.
Even exceptional increases to the state pension will leave it low by international standards (Image: Getty)
The current state pension of £9,340 is set for an increase that would take it over the £10,000 mark to £10,162 if the ONS forecast is to be believed.
Stephen Lowe, group communications director at Just Group, said: “While to many an eight percent increase in the State Pension will seem extraordinarily generous, our analysis shows even this level of uplift would still not give single pensioners an income the public thinks provides an acceptable minimum standard of living.
“We know the State Pension was never designed to do more than provide a very basic level of retirement income which is why building up some private pension is so important.
“The challenge for many people is how to bridge the gap between what the State offers and what the public considers an “acceptable” standard of living in retirement.”
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The state pension is relied on by millions of pensioners for them to maintain living standards, but it replaces only about 22 percent of average pre-retirement income, according to the Organisation for Economic Co-operation and Development (OECD).
But worryingly, the state pension makes up half or more of total income for 60 percent of retired households.
Mr Lowe added: “For those approaching retirement, it is vital that they take a little time to plan ahead. The government’s free, independent and impartial guidance service – Pension Wise – is a great place to start and help people understand their options.”
Just Group has said it is women who suffer the most from low state pensions as nearly twice as many women over-65s are single, widowed or divorced as men.
The OECD has also estimated that women in the UK generally receive between 34 percent and 43 percent less in income than men in retirement.
Mr Lowe said: “Any reduction in the triple lock seems set to hit women disproportionately.
“There is already a substantial retirement income gender gap in the UK6 – removing some of the protections around the State Pension sends a message from government that it is happy to risk damaging financial outcomes for women in later-life even further.”
Although this outlook is dire, Mr Lowe concluded there are ways people on low incomes in retirement can help themselves.
He explained: “Many pensioners do not claim their full benefit entitlement and so this should be the first port of call for those who are struggling for income in retirement.”
What is the state pension? (Image: Express)
He said that as many as 40 percent of households don’t claim any benefits they’re entitled to and a further fifth don’t claim the full amount they’re entitled to.
The state pension is tied to wage growth figures because of the Government’s triple lock policy.
This guarantees that increases to the state pension rise in line with the highest of inflation, wage growth or 2.5 percent.
Many may be worried that if the state pension is suspended once then it could be again.