Money blog: State pension likely to rise by nearly £500 under triple lock rules (2024)

Basically, an annuity is a way of managing how you spend your pension pot.

The financial contract converts your savings into an annual income, like a state pension, rather than flexible drawdowns.

The product is sold by insurance companies to those aged 55 and over and can be fixed-term or lifetime.

Payments are made either annually, biannually, quarterly or monthly, and how much you receive depends on the size of your pension savings, the features of your particular annuity, and your health and lifestyle.

How does it work?

The annuity payment is an annual percentage of the amount you convert. So if you spend £100,000 of your pension savings on an annuity product at a 5% rate, you'll get £5,000 a year.

Once you've agreed to the contract, you cannot change your annuity, take out lump sums, or transfer it to someone else.

But you don't have to choose between annuity and investment/drawdowns - you can apportion your pension pot as you see fit.

Fixed v lifetime

Lifetime annuities guarantee you a set income for the rest of your life, no matter how long that is.

Fixed-term or temporary annuities pay an income for a set period of time, often between three and 25 years.

This allows you to shop around for other options once the contract ends. Some people might use them as a bridge between retirement and the beginning of their state pension at age 66.

What rates are available

There are various packages, so let's start with the simplest. Level annuities pay out the same amount of money each year but they are vulnerable to inflation, which can reduce your standard of living over time.

Escalating annuities provide a partial solution to this problem, increasing at a fixed percentage each year (eg. 3%). The catch is that payments begin at a lower rate than level annuities.

Inflation-linked annuitiesrise in line with the retail price index (RPI), proofing your income against inflation, but starting at a much lower rate.

Investment-linked annuities: This invests part of your pension fund and pays out extra income - or not - based on the performance of the investment.

Impaired or enhanced annuities: If you have health issues that are expected to shorten your lifespan, larger annual payments will likely be available on the basis that insurance companies expect to spread them over a shorter period of time.

Joint life annuities allow you to pay your spouse or partner after your death, but often at a lower rate. Or you can protect a lump sum in your initial agreement to be transferred to your loved one when you pass away.

Taxation

Annuities contribute to your personal allowance and, once that is reached, are taxable like any other income stream. Remember, you are entitled to draw down a 25% lump sum tax-free from your pension pot.

An annuity paid to a spouse or partner after your death is also subject to income tax, unless you die before the age of 75.

Advantages and disadvantages

In summary, here are the positives and negatives to consider.

Advantages:

• Guaranteed payments for life available
• No additional fees, unlike drawing down savings
• Clear picture of retirement income
• Predictable for budgeting and planning
• Low-risk
• Makes it impossible to burn through savings quickly, unlike a drawdown

Disadvantages:

• Depending on how long you live, you might get back less than you paid for
• Taxable
• No flexibility
• No cash value
• Can't be sold or transferred
• No lump sum drawdowns

Read other entries in our Basically series...

Wages are still rising, giving pensioners a boost and it also means filling up the car will be cheaper, with the oil price hanging around a two-and-a-half-year low.

A barrel of the benchmark Brent crude costs $71.48, something that will filter down to pump prices in about 10 days.

The benchmark UK stock index, the FTSE 100, was down 0.32% led by UK pharma company AstraZeneca. It was the biggest faller of the 100 most valuable companies on the London Stock Exchange as its share price dropped 5.48% - its biggest one-day drop in seven months - following disappointing lung cancer drug trials. The larger and more UK-based FTSE 250 index rose 0.27%.

The dollar weakness is still benefiting the pound - and anyone buying in dollars while on holiday to the US - but it is now less in the final few weeks of the summer holidays at $1.3095, just below $1.31.

Against the euro, a pound buys €1.1861.

This morning's figures will be encouraging data for the Bank of England, but it may not be enough for back-to-back interest rate cuts at its next meeting on 19 September.

Analysts at Capital Economics said the easing in wage growth would be "welcomed" by the Bank, but it is unlikely we will see rates cut from 5% to 4.75%.

"Overall, while the continued easing in wage growth will be pleasing to the Bank, we doubt today's release will move the needle too much for September’s policy meeting," they said.

"We still think the Bank will pause in September before implementing another 25bps rate cut in November."

Gabriel McKeown, head of macroeconomicsat Sad Rabbit Investments, told industry news wire Newspage that today's labour data is "critical" for the Bank's decision.

"A September cut seems unlikely, with the Bank's Monetary Policy Committee wanting more evidence of sustained cooling in the labour market and a further moderation in wage growth," he said.

The state pension is set to rise by around £460, taking it to just shy of £12,000 next year (see our previous post for more details on why this is happening).

But as this closes in on the £12,570 personal allowance, it raises the question - could they soon be paying tax in their retirement?

Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, says: "Given that the freeze to this threshold is expected to remain in place until 2028, it raises the spectre of the full state pension alone taking pensioners over it and into the realms of paying income tax during the next few years.

"For those who have saved for the future, paying tax on income in retirement is nothing new, but the principle of paying tax on the state pension is still very unwelcome.

"If pensions are rising with price inflation at the point when the state pension eventually breaches the personal allowance, once tax is taken into account, retirees who get just the state pension will actually be worse off in real terms. Pensioners are already asking whether they should be in the frame for filling the gap in the public finances, and this isn't going to quell their concerns."

Another pension expert said more "must be done" to provide immediate support for pensioners.

Lily Megson, policy director at My Pension Expert said: "The cost-of-living crisis has taken its toll, and the decision to cut the winter fuel payment for most households will be particularly harsh, especially with energy prices remaining high.

"Many pensioners will face a gruelling winter and so, while the state pension increase is welcome, it will fall short of fully protecting pensioners from rising costs."

The state pension is likely to rise by 4% next year, wage growth figures suggest.

This equates to approximately £8.85 more a week for pensioners, or £460 a year.

The triple lock commits the government to increasing pensions every April by whichever is highest - inflation (the figure for September, published in October), average wage growth between May and July (published just now) or 2.5%.

It is sometimes forgotten that, regardless of the political commitment to the triple lock, the government is legally required to raise pensions by at least average earnings growth.

This morning's figures show average weekly earnings rose by 4% in the three months to July.

Inflation data for September has not yet been published but stood at 2.2% for July, according to the Office for National Statistics.

The ONS said: "This total annual growth is affected by the NHS and civil service one-off payments made in June and July 2023."

The pension rise comes as the government is under pressure having scrapped the winter fuel allowance.

MPs will vote on the contentious plan later, with Sir Keir Starmer likely to face a rebellion - though Labour's majority means it should win the vote.

The move - which will see around 10 million people lose the payment of up to £300 to help with energy costs - has been defended by Labour, which says "tough decisions" need to be made in light of the £22bn "black hole" in public finances.

But some MPs from their own side, as well as charities and opposition MPs, are calling for a U-turn, saying the policy will leave less well-off pensioners with "a heart-breaking choice between heating and eating this winter".

After the revivalof popular Cadbury's chocolate bar Top Deck earlier this year, we asked you which discontinued treat you would like to see brought back - and we got so many responses that we made a weekly feature of it calledBring It Back.

Over the past eight weeks, we've picked one from our comments box and looked at why it was so beloved and, crucially,found out whether the companies in question might consider reintroducing them. Today's is the last in the series.

This week we turn our attention to a product that was suddenly withdrawn from sale just a decade ago - white chocolate Maltesers.

Round balls of malted milkcovered in chocolate, original Maltesers were launched in 1937 after being created by AmericanForrest Mars Sr.

They were first marketed in the UK as a "lighter" way to enjoy chocolate, and were aimed at "dieting women".

Fast-forward to 2003, and the white chocolate Malteser was launched, before vanishing from shop shelves in 2014 - with Mars reportedly blaming low sales.

Nevertheless, a significant degree of affection clearly remains for the chocolate treats - with a number of readers contacting us to make this clear.

Daicat said: "I would like to see white chocolate Maltesers come back as with many people, I can't eat brown chocolate."

Tim, meanwhile, told Sky News: "There's barely a day goes by I don't think about white Maltesers. They were delicious!

"I'd do anything to get my hands on a bag again."

Indeed, their popularity held up to such an extent that more than 1,600 people signed an online petition started byBailey Raybould.

He said: "White chocolate Maltesers were easily the best chocolate around. But Mars and Maltesers discontinued them. So let's bring them back."

Sky News put this to the manufacturers responsible, who told us they recognised "the enduring love for old favourites" (in a statement that may be familiar to avid Money blog readers, as they actually covered the query along with that of another product previously featured in the Bring it Back series).

A Mars Wrigley UK spokesperson said:"We’re always listening to the fans of our chocolate and fruity treats, which is why we’re constantlyinnovating our ranges. Whilst White Chocolate Maltesers aren't currently on shelves, we're pleased to offer many delicious alternatives such as M&M's, and of course, our original Maltesers.

"We've always got an ear to the ground and recognise the enduring love for old favourites, so stay tuned for some epic comebacks that could be happening soon… Watch this space!"

Missing any of these treats? Click below to find out if they might be making a comeback soon:

Tickemaster's "in demand" ticket prices for Oasis potentially breached consumer law, the consumer group Which? has warned, as it called on the band and ticketing platform to "do the right thing" and refund fans who paid more.

There has been controversy over the dynamic pricing model used by the site for the band's long-awaited reunion gigs.

Prices - which had been originally advertised as £148.50 - surged as high as £337.50 each. This meant four tickets (the maximum any one person could buy) could cost an eye-watering £1,400, once service and order processing fees were included.

Which? asked Oasis fans to send in screenshots of the ticket buying and checkout process to see if fans were warned that ticket prices could surge due to high levels of demand.

The group received dozens of screenshots from fans who had tried to buy tickets - both before and after prices increased - none of which showed a warning message that Ticketmaster would increase prices during the sale.

Instead, Which? says it saw evidence that fans were shown one price for tickets, only to have that price taken away at the last second and replaced with a far higher, and unexpected, one.

What laws might have been broken?

The Consumer Protection from Unfair Trading Regulations (CPRs) protect consumers from unfair or misleading trading practices. Under the CPRs, when advertising a product, traders must not mislead consumers with how prices are presented or leave out key pricing information that they might need to make an informed decision about their purchase.

The regulations also backlist practices including bait advertising. This is when the trader lures in the consumer with attractive advertising around special prices when the trader knows that it cannot offer that product or only has a few in stock at that price.

Which? believes the "in demand" prices may have breached the CPRs as fans were not informed of the increases until they had tried to add the cheaper tickets to their baskets.

What have Ticketmaster & Oasis said?

Ticketmaster said: "We are committed to cooperating with the CMA and look forward to sharing more facts about the ticket sale with them."

Ignition Management, which manages Oasis, did not respond for comment, but the band said last week when it announced two extra gigs next year that it needed "to be made clear" that the band "leave decisions on ticketing and pricing entirely to their promoters and management, and at no time had any awareness that dynamic pricing was going to be used".

Liam Gallagher has also addressed the chaos over ticketing, saying: "I'm seriously gutted for people that can't get tickets, I can't even go there it hurts my heart and I know people will think I'm taking the piss, but I'm not."

As Asda fights an equal pay claim from some staff (see 13.01 post), it has announced the launch of a new workplace savings account.

The benefit is exclusively for its 150,000 staff and the company has partnered with Wagestream to offer a 4.7% interest rate.

Colleagues will be able to save in two ways - by either setting a fixed amountto be taken out of their regular pay packet and deposited straight into their savings account or by "rounding up", which will see their shift payments rounded to the nearest whole pound and the difference deposited into their accounts automatically.

There is a monthly limit of £1,000 and a total limit of £85,000.

What do the experts say?

We asked Savings Champion if the benefit was as good as it sounds, and co-founder Anna Bowes told us...

"On the face of it, this is a great initiative and the fact that the funds can be taken on payday will probably encourage more staff to take part. I always recommend that when savers open a regular savings account, they set up a direct debit to take the deposit on or just after payday, so that it makes it feel like an essential bill – but one that they will benefit from in the future."

She said the rate on offer (4.7%) is pretty decent, but those looking to save less than £1,000 may find better rates elsewhere.

"For example, the Principality Building Society is paying 8% AER on deposits of up to £200 a month, although this account has a term of six months only, so would require more intervention and admin, as you'd need to find a new home for the cash on maturity and start another savings account, which may put some people off!

"Anyone who already has or wants to open a current account with First Direct or the Co-op could earn 7% AER on maximum monthly deposits of £300 or £250 respectively. However, on a deposit of £300 a month, that is a difference of just £45.50 in gross annual interest – so not an enormous loss, especially if the Asda initiative actually encourages more people to save!"

Anna said Asda employees might wish to seek more details of how their money is protected before signing up.

The Body Shop has been rescued from administration in a deal that could save more than a thousand jobs.

The beauty retailer has beenacquired by a consortium led by the British cosmetics tycoon Mike Jatania.

It is currently understood there are no immediate plans to shut any of the 113 remaining UK stores.

In a statement, Aurea said the acquisition was its largest transaction to date and it would "steer the Body Shop's revival and reclaim its global leadership in the ethical beauty sector it pioneered".

The Body Shop was founded in 1976 by Dame Anita Roddick. Trading out of a small shop in Brighton, it made its name selling cruelty-free fairtrade products.

But it fell into administration in early February after previous forecasts for how much funding it would need to keep going proved too low. In the weeks that followed, administrators said hundreds of jobs would be lost and dozens ofshopsclosed.

Ministers are not looking to soften the blow for 10 million pensioners who will no longer receive winter fuel payments, the prime minister's spokesman has said.

Ahead of a vote on Tuesday on the controversial decision tolimit winter fuel paymentsto those on pension credit, the government is remaining steadfast despite growing opposition from Labour MPs, unions and charities.

Up until now, all pensioners received the payment to help with higher energy bills over the winter.

Following a cabinet meeting on Monday, Sir Keir Starmer's spokesman was asked if ministers discussed softening the impact for pensioners no longer eligible.

"Not at all," he said.

Read the full story from our politics team here...