The ‘triple lock’ increase to state pensions offers two important lessons.
In November’s Autumn Statement, the Chancellor, Jeremy Hunt, announced that the ‘triple lock’ would again operate on State pensions, meaning that from next April pensions rise by 10.1%, in line with the September 2022 inflation. Mr Hunt applied the same increase to nearly all other benefits, a move with two important lessons for your own financial planning.
Firstly, it is a reminder of the paucity of social security benefits. The Covid-19 pandemic gave many people an unwelcome insight into the low level of benefits. In response, the government was forced into a temporary £1,000 a year increase to the main benefit, Universal Credit (UC). It also relaxed waiting period rules on statutory sick pay (SSP) although, like the £1,000 UC uplift, the easing has since been withdrawn.
From next April, SSP will be just £109 a week. For a couple aged 25 or more with two children, the maximum UC payment will similarly rise to just under £1,118 a month. In comparison, a 35-hour week at next April’s National Living Wage rate equates to earnings of just under £365 a week or £1,580 a month before taxes.
Impact of devaluation
The second lesson from the benefit increases is that the impact of inflation must be built into any financial planning. Ignore rising prices and the targets you have set steadily devalue, whether in terms of your savings goals, planned retirement income or your health and life insurance protection. For example, if you had life assurance of £100,000 in October 2017, you would need cover of £121,113 in October 2022 to maintain your policy’s buying power.
With the new year in sight, now is a good time to review how your current financial plans have been affected by inflation. One consequence could be increased outlays, but as the Chancellor demonstrated, reviewing plans and implementing changes is the only way to maintain the same level of safety net.
The Financial Conduct Authority does not regulate tax advice. Tax treatment varies according to individual circumstances and is subject to change.
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