Pensions triple whammy

Posted by Gareth Hargreaves

"iresponsible" pensions pledge shows Government electioneering will target UK baby boomers.

retirement planning

Jargon, abbreviations and catch-phrases are designed for young ears. Those of a certain age have struggled in recent times with a succession of modern technical problems - being “on-line”, connecting to “wifi” and texting.

Then came social media. With help from the younger generation, Facebook is just about manageable and “Skype” is a great way of seeing and keeping in touch with family.

Tweeting, though, appears a step too far. Enough is enough. Crucially, older minds do not feel their quality of life is damaged by a blank look when asked about their Twitter account!

Yet David Cameron has started the General Election (still 17 months away) ball rolling by whispering his “triple lock” (1) promise into the ears of the UK’s “baby boomers.” (2)

Labour leader Ed Milliband responded immediately: “Nobody should be in any doubt about my commitment to the triple-lock on pensions.” (3)

What is “triple lock”? What is its magical power to win votes?

“Triple lock” is the system which ensures the state pension goes up by whatever is higher – inflation, wages or 2.5%. Therefore, our Prime Minister has promised that the state pension will continue to rise by at least 2.5% until 2020 if the Conservatives win the next election.

It might not sound much of a magic bullet, but already Cameron’s promise has been described as “unaffordable and irresponsible” by the Institute of Economic Affairs. (4)

For a long time now, the government has justified increasing the state pension age because today’s pension arrangements are not sustainable. The IEA calculates that Cameron’s declaration will see state pension spending increase by 42% as proportion of national income between 2012 and 2062. (4)

Like most pension proposals, it appears another case of kicking the can down the road; like most pension plans, by the time it’s apparent it’s not working, it’s too late and the culprits have long gone.

The worry for soon-to-be pensioners is that the Chancellor will compensate such headline-grabbing generosity by finding new ways of recouping that heavy financial burden. Those proposals are unlikely to be publicized so proudly by the government!

Baby boomers form next election battleground

Interestingly, Cameron’s “triple-lock” promise means the Tories have identified the “baby-boomers” – those born in the two decades after the end of the Second World War - as the key battleground in the next election. (1)

Not only are they living longer, but they are better off than the generation either side of them. They hold the purse strings; another big bonus for politicians is that they come out to vote!

“I want people when they reach retirement age to know they can have dignity and security in their old age,” insisted Mr. Cameron.

This UK General Election will be in sharp contrast to the Scottish Independence vote in September this year. Alec Salmond’s SNP have gone for the youth vote, allowing those aged 16 and over to decide: Should Scotland be an independent country?”

Could “triple lock” come back to haunt Cameron? It might be “triple trouble” if inflation, or more likely wages, started to rise strongly as the UK emerges from the recession. Private sector pensions are disappearing fast, while many feel public sector pensions are unsustainable.

Many financial advisers believe that Cameron would not only “wow” but “win” the grey vote if his Coalition government seriously addressed the two real financial “scandals” of the older generation – pension annuities and property equity release.

The UK individual taxpayer has shown a careful and calculating approach to five years of austerity, seeking advice, acting on it when sensible and ignoring it if it’s a bad deal. The UK taxpayer has come out of this recession well ahead of the politicians and bankers in terms of reputation and judgment.

As money-purchase pension schemes have become the norm as private company final-salary schemes have closed, the earning power of £100,000 in your pot has dropped from nearly 15Kpa to just over 5Kpa in the space of twenty years.

Poor annuity values

Understandably, the best financial advice has been to delay buying an annuity, a decision that offers no second chances or “cooling off” period, and opt for “drawdown”. The frequent changes to pension regulations do not help the individual’s peace of mind.

The Pensions Minister Stephen Webb has tried to address some of those concerns. As Mr. Cameron was delivering his “triple lock” promise, Webb, a Liberal democrat, suggested: “When you take out a mortgage, in a few years if rates change you can switch your mortgage. But when you take out an annuity, that’s it – for life. This could easily be a quarter of a century.” (5)

“Why shouldn’t you be able to change annuity provider so a few years later somebody else can offer you a bigger pension. Why shouldn’t you be able to shop around?” (5)

“There are also murky things at the point when you buy an annuity. There are odd percentages going in funny places for no good reason. We need to ensure it’s transparent.” (5)

Brave, bold words, long overdue! The Association of British Insurers responded that annuities were “not as straightforward as a fixed-term mortgage calculation.” Well, they would say that, wouldn’t they? (6)

Investors want action, not words, so they can base their financial planning on facts, not political rhetoric. That, as we know only too well, means very little when it matters!

For a free, no obligation initial chat about your individual finances, call us on 0800 0112825, e-mail or take a look at our website


  1. BBC’s Andrew Marr Show
  2. US Censor Bureau
  3. BBC News
  4. Institute for Economic Affairs (IEA)
  5. Daily Telegraph
  6. Institute of British Insurers


The value of shares and investments can go down as well as up. Your home may be repossessed if you do not keep up repayments on your mortgage. 

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