The Iran war could have a long-term impact on the cost of living (Image: Getty)
As the triple lock boosts state pension payments, pensioners may wonder what the current turbulent international events could mean for next year’s increase. The on-going war in Iran has already led to a spike in petrol prices, with experts warning the cost of living could jump up over the month’s ahead.
A spike in inflation could mean this is the key factor for next year’s state pension increase. The triple lock policy ensures payments rise each April in line with whichever is highest of three measures: 2.5 percent, the rise in average earnings or inflation.
State pensioners received a record 10.1 percent increase in April 2023 thanks to high levels of inflation, after the war in Ukraine led to a spike in living costs. Antonia Medlicott, founder and managing director of investment guidance group Investing Insiders, spoke about how things could pan out over the year ahead.
She said: “Most analysts previously predicted that inflation would be around 2 percent across the second half of this year, including September when the measure is taken for the triple lock. But it looks like it will be higher than that, at around 4 percent.
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“We are unlikely to see figures anywhere near as high as in 2023. With minimum wage increasing by 4.1 percent already this month, average earnings will be a tough metric to beat, therefore that is more likely to decide how much the state pension increases by.”
State pension payments went up 4.8 percent this April, in line with the average earnings figure. This lifted the full new state pension from £230.25 a week to £241.30 a week.
Extremely high inflation
Ms Medlicott warned that the situation is volatile. She said: “We are possibly only another major event away from triggering extremely high inflation which could significantly impact the amount the triple lock increases by in 2027.”
With the prospect of further large increases to the state pension, the expert warned the policy may soon become unaffordable. She said: “The bigger picture with this is that if we continue to see major increases, the triple lock looks even more unsustainable. At some point, the question is not whether it changes, but how and when.”
People building up their savings through investments, such as in stocks and shares ISAs, may also be worried about the long-term impact of the Iran conflict on the markets. But Ms Medlicott warned against taking any rash action here.
Have a long-term view
She said: “Investing should always be for the longer term, typically five years or more, so if you have invested money already, you shouldn’t need to sell when the markets are down. Particularly with recent issues around the world, markets have been more turbulent, but if you have long-term goals, taking short-term action such as waiting for volatility to pass before using a stocks and shares could likely backfire, because unless you spot the exact moment shares are rebounding, it will have already happened.”
She encouraged investors to take a long-term approach. The analyst said: “Some people may have timed the market perfectly and made good money fast, but this is extremely difficult and unrealistic. For the majority, time in the market is much more powerful and will beat those trying to time the market for long-term gains.”
The ISA allowance rules are changing from April 2027. From then on, you will only be able to use up to £12,000 of the current £20,000 allowance for cash deposits. The remaining £8,000 will only be available to make deposits into investment-based accounts.
However, state pensioners will not have to worry about the new rules, as those aged 65 and over will keep the current £20,000 allowance. Asked if cash ISAs may be a safer bet than stocks and shares for now, Ms Medlicott said: “If you are risk averse, it is the safer option to keep your money in a cash ISA, as it will likely cause you less headaches if you feel the need to constantly check performance.
“There are also currently some good cash ISA rates available on the market too. Ultimately, don’t let short-term headlines derail long-term plans. Review your portfolio to ensure it remains aligned with your goals and risk tolerance, but avoid reacting solely to fear.”
