What now for pensions policy?
Whilst pension freedoms still feel like a recent development for many, they have now been in place for some seventeen months since their introduction in April 2015. That’s beginning to feel like a remarkably long time ago as few further announcements on pension reform have been made for some time. With the arrival of Theresa May at Number Ten, it doesn’t seem likely that this is going to change any time soon. Whilst the previous two pensions ministers in Baroness Altmann and Steven Webb before her were welcomed as figures who understood the importance of reforming the pensions system, the downgrading of pensions minister to a junior ministerial position means many are now expecting pension reform to be placed on the backburner by the new Prime Minister.
One area which remains under question is the government’s triple lock policy, introduced in 2010 by the coalition government and offering a guarantee that the state pension would increase each year in line with either average earnings, inflation or a minimum of 2.5%, whichever is highest. The reasoning behind the triple lock is to protect income from being eroded by cost of living increases, as well as preventing increases so small that they become meaningless.
The downside of the triple lock is the amount it will cost the government, estimated to be around £45 billion up to 2028. It was for this reason that Baroness Altmann suggested replacing the triple lock with a “double lock”, which would see pensions grow in line with either inflation or earnings, but remove the guarantee of a 2.5% minimum increase.
With the resignation of Baroness Altmann in July as Theresa May became Prime Minister, it looks as though the triple lock is here to stay for the foreseeable future. That’s good news for those paying into pensions and preparing for their retirement years, but puts pressure on the government to come up with a solution to the hole the policy is set to leave in their finances.