Chancellor Rishi Sunak is said to be considering changes to the guaranteed annual rise in pension payments ahead of the Budget this autumn. The triple lock is a government pledge that the basic State Pension and new State Pension must rise each year in line with the highest of three possible figures: the rise in prices, the rise in earnings or 2.5 percent, whichever is higher.
Before 2011, the State Pension rose in line with the retail prices index measure of inflation, which was consistently lower than annual rises in earnings or 2.5 percent.
The last few years – in which earnings growth has been extremely weak – has seen triple lock boost the value of the State Pension relative to both average earnings and prices.
Pensioners have seen their incomes rise at almost double the pace of the average worker in recent years.
However, this could all be about to change for the UK’s pensioners.
If the triple lock is kept in place, the State Pension is on track to grow at the fastest rate in more than a decade, rising £882 in 2022.
But the Chancellor is reportedly not keen on giving pensioners such a significant boost.
Earnings data published by the Office for National Statistics today showed growth was at 8.8 percent due to mass redundancies, wage cuts and furlough which caused a steep fall in average earnings due to the coronavirus pandemic.
Mr Sunak wants to avoid using skewed economic data to keep the guarantee on its feet, and instead use “underlying” earnings data, which strips away the abnormal effects of the pandemic.
This lower figure comes at around 3.5 percent to 4.9 percent.
In turn, this would increase the annual State Pension payment by £327 – saving the taxpayer £3.5billion.
However, it would deny the UK’s 12.4 million pensioners – who have arguably borne the brunt of the pandemic being among the vulnerable in society – a historic boost.
Those turning 66 this year would be £11,866 out of pocket by the time they turn 85 if the underlying figure is used – assuming the State Pension would then continue to rise at 2.5 percent per year as normal.
Whatever the decision made by the Chancellor, the smoothing over is likely to be a highly contentious issue in the months to come.
Not only will scrapping the triple lock break a Tory 2019 manifesto pledge, it is also likely to hurt some of the most vulnerable members of society, as well as push hard on the Government’s plans to recover economically from the coronavirus crisis.
Ian Browne of Quilter, an investment group, said: “The latest data suggest the Chancellor’s worst fears will become reality and he’ll either have to spend billions extra on the State Pension next year and forever after, or make a political challenging decision to tweak the triple lock or scrap it entirely.”
Steven Cameron, of pension provider Aegon, said: “If this trend continues, we could even it go into double figures, meaning if the triple lock is not fudged in some way, State Pensions could go up by more than 10 percent.”
This would cost the Treasury up to £9bn, he estimated.
Andrew Tully, of Canada Life, a pension provider, supported a move to strip out the artificial earnings growth, claiming it would be the best compromise for the Government.
He said: “The State Pension would increase by a material amount, hopefully seen as fair in these exceptional circumstances, and making sure manifesto pledges are met.”