The new tax year's just around the corner.
And as ever, this brings some fantastic tax benefits - that could help to boost your savings, investments and pensions even further.
But before we look at those, let's talk state pensions - and, dare we say it, the triple lock saga.
Yes - it's something you've probably heard a lot about over the recent months
From April 6, the state pension will rise (just like it does every tax year). But with the triple lock pledge scrapped for 2022/23, the question is – will this year’s increment be enough for retirees?
And what should you be thinking about right now?
Before we explain, first – why is triple lock such a big deal?
Triple lock is basically the formula used to decide how much state pension goes up each tax year. Under this popular format, the increase is based on whichever is the highest – the rate of inflation (measured by the Consumer Prices Index), the UK average percentage growth in earnings, or 2.5%.
Ever since its introduction in 2010, this ‘best of three’ approach has proved a great way to boost the state pension yearly. So that it at least grows in line with inflation and at least maintains the spending power for retirees.
With inflation running higher than normal since since the summer of 2021, the need for the state pension amount to climb is of course much greater. Hence why it’s no surprise that the government’s decision, to scrap triple lock, has disgruntled retirees and savers all over the country.
Why has triple lock been removed?
The main trigger arose last September – when the government’s furlough scheme came to an end for UK workers.
As thousands returned to full pay, average earnings (including bonuses) shot up to an estimated 8%. And in turn, this would see state pensions rise by as high as 8.3% through the triple lock system.
Great news for pensioners. But this unusual, costly situation shaped a huge dilemma for the government – who are still trying to pay back debts built up in the pandemic, as well as find money for its proposed social care plan.
An unwelcome substitute
Despite pledging to use triple lock until 2024, last November ministers voted to temporarily ‘demote’ the policy to double lock. A formula that bases state pension rises on the rate of inflation, and a minimum of 2.5%.
From 6 April 2022, this decision will see the state pension climb by 3.1% - in line with the current rate of inflation.
Had the 8.3% boost been applied, this could have made a big difference to a lot of people in retirement. Those claiming the new state pension would have received an extra £14.90 per week – compared to £5.55 under the double lock regime.
So, what’s expected after 2022/23 tax year? Will triple lock return?
That's the million-dollar question.
And one which doesn’t have a clear answer just yet. Yes, triple lock has been suspended for a year (as it stands). But there are growing fears this alteration will lead to permanent changes to the state pension going forward. The government has committed to continuing triple lock until at least 2024, but beyond that it’s uncertain.
A more negative scenario would be the introduction of a single lock policy. Or, worse still – no policy at all.
Inevitably, so much uncertainty could pose an even bigger financial threat for younger generations. Already thwarted by a possible future of high inflation, and costly house prices. This further blow could see them receive a less desirable state pension in retirement.
What do you need to think about right now?
It doesn’t matter whether you’re already retired or are still saving for retirement. The suspension of triple lock no doubt feels like another frustrating setback – after what has already been an incredibly tough period for most of us.
What it reminds us of, though, is that pension rules can change. And more importantly, we simply shouldn’t rely solely on the state pension to fund retirement.
Sure – the state pension is a useful source of income. But to stay ahead of the rising cost of living – while fulfilling a comfortable lifestyle – it could be a good idea to have other financial options in place. Such as other pensions and investments.
As always, we're here to chat about any concerns you may have right now.
Your new tax year checklist
Don't forget - from April 6, your 2022/23 new tax year allowances will be available which you can take advantage of. Here are just three that could make a positive difference to your finances over time.
The pension annual allowance
Over 2022/23 tax year, the standard pension annual allowance will stay at £40,000.
This means that when paying into your pension in that tax year, you can contribute up to that amount - or how much you earn annually (whichever is lowest).
The more you pay into your pension, the more money you’ll receive in tax relief providing you are under the age of 75. And if you haven’t used your allowance in the last three years? You may be able to pay even more into your pension – by carrying forwards any remaining allowance from those three years.
If you've stated to access your pension, or your annual earnings are more than £210,000, your annual allowance may be reduced.
The pension lifetime allowance
In the new tax year, this allowance will stay at £1,073,100.
This is basically the limit on the value your pension pots can grow over time - while not being subject to additional tax charges on exit.
The ISA allowance
This will remain at £20,000 for the next tax year.
Any money within an ISA wrapper will be able to grow free from income and capital gains tax. Over time, this could help to boost your investments even further – so it could be worth making full use of each tax year.
Remember – any allowance unused can’t be carried into the next tax year.
By investing with our advice, our aim is to grow your money by a greater extent than is available through cash savings accounts to help you achieve your goals. Although funds are not like bank and building society savings accounts. It does mean placing your capital at risk, as its value can fall as well as rise and you may get back less than you originally invest. The tax treatment of your investments depends on your individual circumstances and prevailing legislation, both may change. Economic and market conditions of the past may not be repeated in the future.
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