It’s a new year, with all the usual new year lists and predictions. As we edge towards spring you may be wondering: what’s in store for pensions this year?
We’ve got five thoughts about Pensions 2023.
Thinking of stopping pension payments? Count the future cost
With inflation still at levels we haven’t seen for many years, the cost-of-living crisis keeps on biting. And when you’re looking for ways to lower your cost of living, pension payments may seem like an obvious thing to cut.
But if you do, there’s a cost to your future. It’s not just the money from you that stops. You also lose the extra money your employer and the government put into your pension – and this could make your future pension savings smaller by thousands of pounds. Check out our cost of living crisis and paying into your pension article for an example.
Of course, stopping pension payments may be better than going without other things. But it’s important to have all the facts. And if you do decide to stop payments, keep an eye on things and think about when you might be able to restart. It’s easy – simply tell your employer you want to restart your pension payments.
Investment falls? Don’t panic
Although investments going up and down in value is normal, there was more down than up in 2022 – including investments that are considered less risky. You may have seen the value of your pension savings going down.
History suggests that when investment markets fall it’s wise to sit tight – what goes down usually comes back up again.
Are pensions going up again? It’s hard to say, but there seems to have been some recovery in investment markets since the lows of 2022. Our own Diversified Growth Fund has bounced back, growing by around 10% in the last three months of 2022.
State Pension rise 2023
The 2023 pension increase for State Pensions is due to be one of the highest on record. This is down to the State Pension triple lock – a guarantee that the State Pension will increase in line with the highest of:
- average earnings
- inflation, measured by the Consumer Prices Index (CPI)
- 2.5% a year
CPI measures the increase in the prices of a selection of common goods and services. It’s regularly updated to reflect current spending habits.
CPI inflation in September last year was 10.1%, so that’s what the State Pension increase will be in April 2023. It’s the highest increase since the triple lock began in 2012 and takes the full amount of State Pension to over £10,000 a year.
Good news for pensioners, but lots of people are asking: is it sustainable in the future? Last year the government suspended the triple lock because of an unusually high one-off increase in average earnings – 8.3% – caused by people going back to full-time work after the pandemic lockdowns. So last year’s increase was based on CPI inflation of 3.1%.
The government promised to reinstate the triple lock for this year but at the time, nobody knew inflation would rocket the way it has. So there are still questions over whether the triple lock will stay in future.
Also, State Pension age – the age you can claim your State Pension – has been rising for some time. It’s currently 66, will go up to 67 by 2028 and was previously due to reach 68 between 2044 and 2046 – but the government is talking about bringing this increase forward to 2037-2039.
Financial reforms = more investment freedom?
You may have seen headlines about ‘the biggest financial shake-up for 30 years’ and wondered what it was all about. On 9 December last year the government announced its ‘Edinburgh Reforms’, 30 proposals to reform financial rules and regulations (although they weren’t all new). They include:
- replacing current EU regulations with UK-specific ones
- increasing investment in technology and innovation
- stronger regulation of ‘green’ investments, and
- consulting on how to update consumer protections for the digital economy.
Measures especially for pensions included:
- speeding up the consolidation (combining) of defined contribution (DC) pension schemes, and
- changing the way pension schemes charge for managing investments, with the aim of increasing the range of things they can invest in.
So over the long term we may see fewer DC pension schemes, investing more in things like UK social housing and infrastructure. In other words, you could see your pension savings doing more to help the world around you in future.
Pensions and manifestos
There’s due to be a general election by, at the latest, early 2025 – so we expect to see the various political parties starting to set out their manifesto commitments soon. We’ll be keeping a close eye on, and reporting back on, anything they say about pensions. And we’ll continue to campaign for a fairer pensions deal for everyone.
Auto enrolment has been a success story, but our work on the gender pensions gap and underpensioned people show there’s still a long way to go. We’re calling for the following things, which we think would get at least two million more people into auto enrolment.
- Remove the requirement to earn at least £10,000 a year in one job before you qualify to be auto enrolled.
- Stop limiting the amount of earnings that count towards pension saving, so that every pound counts. Currently only earnings above £6,240 a year count towards pension saving.
- Lower the age people qualify to be auto enrolled at from 22 to 18.