Government Pension Policy
Although new pension freedoms still seem like a recent occurrence for many, they’ve now been with us some 17 months following its launch in April 2015. That’s starting to feel like a surprisingly long time ago as very few further reports on pension reform have been announced for quite some time.
Now that Theresa May has arrived at Number Ten, it doesn’t look likely this will change in the near future. The prior 2 pensions ministers in Baroness Altmann and Steven Webb understood the significance of reforming the pensions model, however, the reduced role of pensions minister to a junior position indicates we are now predicting pension reform may be put on the back-burner .
An area which is still under question is the government’s three-way lock policy, released in 2010 via the coalition government and supplying a guarantee that the state pension will rise every year in accordance with either average earnings, the cost of living or by at least 2.5%, whichever is the highest. The thinking behind the three-way lock is to safeguard income from becoming eroded by living cost increases, in addition to avoiding increases so small they become worthless.
The negative effects of the three-way lock is the amount of money it costs the government, believed to be close to £45 billion through to 2028. This was why Baroness Altmann recommended changing the three-way lock with a “double lock”, this would see pensions increase in accordance with either the cost of living or earnings, but take away the guarantee 2.5% minimum safety net.
However, the resignation of Baroness Altmann this summer as Theresa May was announced Prime Minister, means it looks like the three-way lock will be here for now at least. That’s very good news for anyone paying into pensions and getting ready for their pensionable years, however it puts stress on the government to create a means to fix the hole that this policy will leave in the finances.