By David Lamb CFP™ MCSI
Welcome to 2022! It’s hard to believe that it is now more than two decades since people were partying like it was 1999 and worrying about the millennium bug! But time flies and, for many, retirement seems to be hurtling towards us.
It is prudent to review your pensions on a regular basis, but in this blog I’m going to update you on some changes to the State Pension, and rules relating to small pension funds.
In 2010 the triple lock was introduced to the State Pension, a guarantee that it would not lose value compared to inflation and would instead increase by the greatest of either:
- Average earnings
- Prices as measured by the Consumer Price Index (CPI)
- 2.5 per cent inflation.
Unfortunately for beneficiaries of the State Pension (but possibly fortunately for taxpayers) the Government announced in September the average earnings element of the triple lock would be suspended for a year, due to an unusually high average earnings increase put down to the ending of the furlough scheme.
Office for National Statistics data showed the growth in average total pay including bonuses was 8.3 per cent for the three months to July. If the triple lock had been left unchanged this would have smashed the previous record pension rise since its introduction – a 4.6 per cent increase in 2011/12.
The temporary removal of the earnings link will result in the State Pension increasing instead by 3.1 per cent in April, from £179.60 to £185.15 each week, well below the current inflation rate (as the decision was taken before the CPI rocketed to 5.1 per cent in November).
Another change to pensions to be brought in this year is the abolition of flat fees on small pension pots below £100.
This may not seem to be much for a pension fund, but we quite often meet new clients who have several small pots created by changing jobs regularly whilst also paying into different workplace pensions.
This is good news, but I would urge anybody with a ‘frozen’ pension fund to ensure that they do not have any flat fees charged to their pension in addition to any more common percentage-based fees.
It is also worth bearing in mind that it is probably not worth paying higher pension fees to get ‘superior’ investment returns. Charges are guaranteed, returns are not.
If you need help to understand the charges on your pension funds, please do not hesitate to contact us at lambfinancial.co.uk.
