Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.
ONE of the first items to hit the in-tray of the new Prime Minister is likely to concern the next rise in the State Pension.
Either Liz Truss or Rishi Sunak is scheduled to enter 10 Downing Street on 2 September. Less than two weeks later updated inflation data will be published, with many economists expecting annual price rises of more than 10%.
That will be news in itself, but the September inflation number has a greater significance because it is used by the government to determine annual rises in all sorts of payments - most notably the State Pension.
The Government has pledged to reintroduce the ‘Triple Lock’ for State Pension rises. This is the rule that ensures the payment rises automatically by the highest of three possible metrics: the rate of inflation; the rate of wage rises; or 2.5%.
The rise is enacted in April each year, but the reading of wage rises and inflation from the preceding September are used in the calculations. You may remember the controversy from April this year when the Government abandoned the Triple Lock, arguing that the September 2021 wage rise figure of 8% was distorted by pandemic effects. Instead, a lower 3.1% rise was granted.
That has proved a costly decision for pensioners, even if there was a reasonable logic behind it - no-one believed wages were truly rising by 8% a year ago.
This time round any finessing of the Triple Lock would be tolerated even less. The Government has already promised to reinstate the Triple Lock before the current leadership contest had begun, but now the candidates have left us in no doubt that they would hand pensioners a big pay rise.
In particular, Liz Truss has promised to commit to the Triple Lock for the next three years. That’s extra significant given the latest forecasts from the Bank of England this week that inflation is set to still be near today’s elevated levels in a year's time.
The rise is certainly justifiable on the grounds that pensioners include some of the most financially vulnerable people in society, and many will be struggling to meet the costs of soaring heating and food bills already.
In cash terms, a 10% rise would take the State Pension (which applies to anyone who began claiming after 2016) from £185.15 to £203.66 per week. It would also take the annual income from a full State Pension to £10,590.32 - the first time the payment has been worth more than £10,000 a year.
That's going to be vital to help those relying solely on their State Pension, but it’s important even if you plan on having other retirement savings to fall back on. The State Pension is particularly valuable because the income it provides is guaranteed and - if promises are met - rises with at least inflation each year. That's a valuable benefit that is difficult to replicate from other types of pension income.
To see exactly how valuable the benefit is, check out why it pays to make the most of your state pension and find out how you can get your full entitlement.
Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Tax treatment depends on individual circumstances and all tax rules may change in the future. The minimum age you can normally access your pension savings is currently 55, and is due to rise to 57 on 6 April 2028, unless you have a lower protected pension age. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.
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