Pension cuts are coming: what's going to happen - and when?

State pension cuts are on the way - when, and what will you lose?

Autumn Statement 2016

State pensions are under threat. Last week's Autumn Statement was the clearest evidence we have had so far that the government is planning to take an axe to the triple lock on state pensions. Over the weekend, it also emerged that the state pension age could rise again too. So when is the pain going to kick in?

The good news is that Chancellor Philip Hammond pledged that the triple lock will remain in place for state pensions for the rest of this parliament. This means that state pensions will rise each year either with inflation, in line with wage rises, or by 2.5% - whichever is higher.

However, towards the end of his statement, he highlighted that this is an expensive promise, and that after the next election, if the Conservatives are elected, they can't make any guarantees that they would continue to be able to afford it.

See also: Minister refuses to guarantee future of state pension 'triple lock'

See also: Autumn statement: the winners and losers


Is this fair?

The triple lock has made an enormous difference to pension incomes. Between 1979 and 2008, the basic state pension fell from 26% of average full time earnings, to just 16%. It has since recovered a little and now stands at around 18.5% of average earnings. The new state pension is worth more, around 24% of full-time earnings.

The effect of the Triple Lock has been to cost the government £4.5 billion in extra payments in 2016, compared to if they had used a simple earnings link.

It means there are many in government who believe it has served its purpose - something former Pensions Minister Stephen Crabb said on Sky over the weekend. Damian Green, the minister responsible for pensions, also refused to rule it out in an interview on Peston on Sunday.

Others who have also suggested a review of the Triple Lock include another former Work and Pensions Secretary Iain Duncan Smith, The Work and Pensions Select Committee, former Shadow Work and Pensions Secretary and author of The Pinch David Willetts, and Head of the Institute for Fiscal Studies Paul Johnson.

Tom McPhail, head of retirement policy at Hargreaves Lansdown points out: "The Triple Lock was always unsustainable in the long term; it was just a question of how and when the government would move on from it. Given the strength of consensus now developing, it appears increasingly likely we'll see changes in the next parliament."

The government hasn't said anything about what the change will look like, but one option would be a move to a 'double-lock' - where there would be no promise of at least a 2.5% rise each year.

It hasn't confirmed the timetable of any change either, but once it has committed to reviewing the triple lock after the election, there won't be any sense in hanging around. There's no reason why it won't come in as early as 2020.

More changes

At the same time, there are suggestions that the rises in the state pension age have not finished. A DWP technical paper into the state pension age has explored what would happen to state pension ages if people spent a third of their life in retirement (as announced by George Osborne). However, it then asked how the figures would differ if people spend 32% of their life in retirement - raising the possibility of a change in policy.

Willis Towers Watson did the maths on a switch to 32%, and it calculated that people born between March 1962 and April 1972 would see their pension age rise from 67 now to 68. Meanwhile, those born between March 1973 and April 1985 would see their pension age rise to 69 rather than 68. And those born between March 1986 and April 1994 would have a higher state pension age - of 70 rather than the assumed 69.

If this seemingly small tweak was introduced in the review, it would make a massive difference to millions of people. It would also be a reasonably painless way for the government to take thousands of pounds off younger people, without them noticing for decades.

Private pensions

The assault on pensioners doesn't stop at changes to the state pension either. There is a growing sense that the government is about to make dramatic and far-reaching changes to the tax relief we get on workplace and personal pensions too.

George Osborne announced a consultation into pensions tax relief, and the consultation paper was released alongside the Autumn Statement. It pointed out that tax reliefs within the pensions saving system cost around £48 billion a year - and that around two thirds of that goes to higher and additional-rate taxpayers. It added that the growth of 'auto-enrolment' is going to make these reliefs even more expensive, as more and more people start saving.

There have been various ideas floating around about how this system might be changed to make it cheaper and more evenly distributed - including a single flat rate of tax relief, so higher rate taxpayers don't get any extra.

We can, therefore, expect major changes to the pensions system all round. The commentators are expecting news on the changes to tax treatment in the March Budget (2017) , while the changes to the state pension could come as soon as 2020.

But what do you think? Are these changes as inevitable as people think, or an unfair attack on the state pensions that people have worked so hard for? Let us know in the comments.

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