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Triple Lock Benefits Pensioners Again

Posted on: 22nd Oct 2024 by: CamOuse Financial Management Limited

Pensioners will be handed an extra 4.1% per annum via the state pension in April 2025, thanks to the 'triple lock'.

The triple lock is a government policy which means that the state pension increases every April in line with whichever is the highest of:

  • CPI (Consumer Prices Index) in September the year before;
  • the average increase in total wages across the UK for May to June of the previous year; or
  • 2.5%

The earnings figure has just been revised upwards following some new employment data released in October which means the final number has moved from 4% to 4.1%.

This is the highest of the three figures and will be used for the state pension from April 2025 assuming nothing else changes. The cost of the extra 0.1% is estimated at £100m.

The triple lock was introduced in 2010 by the coalition government and Rachel Reeves promised to keep it as part of Labour's manifesto. It was suspended once in 22/23 for exceptional circumstances when  inflation figures were warped by Covid and furlough influenced earnings figures, so the government temporarily removed the earnings measure from the equation to help with Treasury finances. The triple lock went back the following year to deliver a 10.1% state pension increase.

It has attracted criticism due to the cost to the tax payer, and because other benefits do not enjoy similar 'highest of' protections. Universal Credit, Housing Benefit, Maternity Allowance and Statutory Sick Pay, for example, are usually tied to September's CPI figure alone so an increase of just 1.7% is likely for those benefits.

Assuming it is ratified the state pension will change from:

  • £221.20 a week to £230.30 a week for the full, new flat-rate state pension, external (for those who reached state pension age after April 2016)
  • £169.50 a week to £176.45 a week for the full, old basic state pension, external (for those who reached state pension age before April 2016)

Sources:

https://www.bbc.co.uk/news/business-53082530
https://www.morningstar.co.uk/uk/news/AN_1728987850427977900/uk-government-faces-extra-gbp100-million-bill-for-state-pension-rise.aspx
https://www.moneysavingexpert.com/news/2024/10/state-pension-benefits-rise-2025/

Tags: Pensions, Retirement,


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Understanding the true cost to your business

Pension arrangements must be available for all employees. There are three categories of employee:

Eligible

Aged between 22 and State Pension Age (SPA) with qualifying earnings over the Auto Enrolment earnings trigger

Non-eligible

Aged between 16 – 74 with qualifying earnings between lower threshold and the Auto Enrolment earnings trigger
 
Aged between 16 -21 or SPA – 74 with qualifying earnings over Auto Enrolment earnings threshold

Entitled

Aged between 16 -74 with earnings below the qualifying earnings lower threshold

Important Notes

  1. Eligible jobholders must be auto-enrolled
  2. Non-eligible jobholders are allowed to be auto-enrolled if they want to
  3. Entitled workers are entitled to join a pension scheme, but the employer doesn't have to contribute

Qualifying Earnings lower threshold

£5,772

Qualifying Earnings upper threshold

£41,865

Automatic Enrolment earnings trigger

£10,000

Minimum contribution level options:

8% of Qualifying Earnings of which

3% is employer's (starting at 1%)

9% of Basic Salary of which

4% is employer's (starting at 2%)

8% of Basic Salary of which

3% is employer's (starting at 1%)

(Where basic salary is at least 85% of total earnings)

7% of gross earnings of which

3% is employer's (starting at 1%)

Pay reference period

Essentially the frequency that the jobholder is paid e.g. monthly, weekly etc. but with reference to the tax month, week etc. therefore it may not be the same as the payroll period.

Deduction and payment of contributions

It is the employer who is responsible to calculate, deduct and pay all contributions to the AE scheme. NOTE – the first and last contributions are likely to be for less than a full pay reference period and should be adjusted accordingly.

Payroll services

It can be seen that it is very important that the payroll system synchronises with the AE scheme otherwise the employer will not be carrying out all requirements and then penalties will be incurred.

Staging date

Based on the employer’s payroll size as at 1 April 2012 and can be found at www.thepensionsregulator.gov.uk/employers using your PAYE reference. The Qualifying Workplace Pension Scheme must be registered with The Pensions Regulator within 4 months of the staging date.

Compliance and communication

Postponement

Auto-Enrolment can be postponed for up to 3 months:

  • For current eligible employees
  • For workers that meet the criteria in the future for the first time e.g. avoid joining temporary or lower paid workers

Opt-Outs

All eligible employees must be auto-enrolled, but can, with the correct notification, opt-out within one month of joining the scheme and be treated as never having joined. They can opt back in and will automatically be auto-enrolled every 3 years in any case!

Communication

There is a wide range of information that must be provided to all employees at certain times, such as:

  • The date auto-enrolment took place for eligible jobholders
  • That non-eligible jobholders have the statutory right to opt in
  • Entitled workers have the right to request the employer to enrol them into a pension scheme

Salary sacrifice

Contributions can be paid by effectively reducing salary, which saves on NI contributions, but employee must choose to do this – they cannot be forced, so a contractual variation will need to be implemented.

Default investment fund

Investment Options

All eligible employees will be automatically invested into a default investment fund, which is a balanced risk fund that is “life styled” to account for the employees approach to retirement. They also have the option to invest in a wide range of funds of their choosing.