What the Return of the Triple Lock Means for your State Pension
The pensions triple lock is a key part of the UK’s pension system – it ensures that people receive an annual rise in their retirement income, regardless of the state of the economy.
It was introduced by the Conservative/Liberal Democrat coalition government in 2010 however, the current government decided to suspend the triple lock this year. Despite speculation that it could be suspended again in 2023, in this year’s Autumn Budget, Jeremy Hunt announced it will be reinstated in 2023.
As a result, pensioners will experience a 10% uplift in their State Pension payments from April next year — its biggest ever increase.
Let’s look at what this might mean for you and how you can make the most of it.
Triple lock explained
The annual increase of the State Pension is determined by the government’s triple lock. This means that payments increase each tax year by whichever of the following is highest:
- The rate of inflation (measured by the consumer price index in the year to September)
- Average earnings between May and July
The news that the triple lock is being reinstated will give many pensioners reassurance and additional security at a time when inflation is on the rise. It means that from April next year, the maximum new State Pension payment will be above £10,000 a year for the first time.
Check your State Pension age
Your State Pension age may seem insignificant, particularly if you’re planning on building enough wealth that you can retire early. But knowing when your State Pension will begin plays an important role in financial planning.
It’ll inform how much you’ll need to draw from your personal or private pensions in the years before you reach State Pension age, versus how much you’ll need once you’re receiving those government payments.
If you don’t already know when your UK State Pension will start, you can check your State Pension age on gov.uk.
Request a state pension forecast
The online process can be surprisingly stressful for non-UK residents due to proof of identity gateways and checks. Downloading the PDF form and posting it to the DWP can be more straightforward. Once you’ve submitted the form, it can take between 4-7 weeks to receive these forecasts.
Plugging the gaps in your State Pension record
Your forecast will highlight whether you have any gaps in your National Insurance contributions. It’s possible to fill many of these gaps retrospectively, going back as far as 2006.
As an expat, you can make Class 2 voluntary contributions rather than funding the Class 3 version. Class 2 is a quarter of the cost and currently costs £164 for each missed year.
However, the rules are changing from April 2023, when it’ll only be possible to retrospectively purchase the previous six tax years at once. So if you want to make up the shortfall for any pre-2016 gaps in your contributions, then you will need to act quickly.
Being proactive and filling these gaps can offer an impressive return on investment. For every year you buy, you’ll receive an extra £7 per week for the rest of your life.
If you’d like our help with any aspect of your retirement planning or you have questions about building wealth tax efficiently as an expat, pleaseget in touch with Forth Capital today.