The State Pension triple lock has long been debated, particularly following the coronavirus crisis, which has cost the Government billions of pounds. But according to a person familiar with the matter, a decision on the triple lock is set to be made imminently. Under the system, the state pension rises each year by whichever is greatest of three key measures: average earnings growth, 2.5 percent or inflation.
However, due to wages data being warped this year, it had been predicted the state pension could rise by up to eight percent – staggering compared to previous observed increases.
This has led to questions about whether a rise to the state pension would be affordable, with some groups also calling into question the matter of intergenerational fairness, particularly given the current circumstances.
This has evidently created a dilemma for Chancellor Rishi Sunak on whether the mechanism should remain in place – a Conservative Party manifesto pledge – or ditched due to the extraordinary circumstances of the pandemic.
A person with knowledge of the matter told Bloomberg the Chancellor has made a decision, and is set to announce it as soon as September 7 – just days away.
It is expected Mr Sunak will suspend the triple lock for the coming year, removing the earnings element in a “double lock” system.
This was an idea which had been floated in the past by some experts and thinktanks who posited the measure could still help pensioners while tempering down more significant increases.
Mr Sunak previously told the BBC’s Charlie Stayt, when questioned on the matter in July, that a decision would be made later in the year.
He said at the time: “What I would say is that the numbers you have mentioned are speculation at this point, and decisions happen later on. Concerns are legitimate and fair to raise.
“When we look at this at an appropriate time, your word is the right word: fairness. That will be absolutely driving what we do.
“We want to make sure the decisions we make are fair, both for pensioners and for taxpayers.”
Understandably, the triple lock is a policy which many pensioners hold dear, particularly individuals who are reliant on the state pension as a primary form of income in retirement.
First introduced by the then-coalition Government in 2010, the triple lock mechanism has proven itself to be an enduring policy to safeguard uprating of the state pension sum each year.
Any change to the state pension triple lock policy will, of course, require a legislative process to be undertaken. Mr Sunak has previously gestured a formal decision on pension payments will be made in November – notably, when the sum for the following year is usually announced.
The Treasury has continued to pledge its support to retired people, while stating “fair” decisions need to be made for “both pensioners and taxpayers”.
Recently, one expert described the matter as a “ticking time bomb” the Chancellor would be tasked with diffusing, evidently a particularly cautious matter impacting millions.
Ian Browne, pensions expert at Quilter, said: “The triple lock is a ticking time bomb for the Chancellor, and time is quickly running out for Sunak to make one of the most contentious spending decisions of a generation. Does he risk jeopardising the grey vote by tweaking or scrapping the lock to save a pretty penny, or does he hold fast on the lock and give pensioners a seismic boost to their income despite the controversial cost? Sunak will have to decide whether to cut the red wire or the blue wire, but so far he has just stalled.
“The Chancellor could temporarily tweak the triple lock this year by moving to a three-year average figure for wage growth in order to smooth the temporary spike caused by the end of the furlough scheme. Using this amended earnings growth figure would increase the state pension by 3.9 percent next year, and would save the Government £4.5billion while maintaining a degree of intergenerational fairness.
“A change from the current trajectory is the only way to truly ensure fairness between taxpayers and pensioners. But it is important to remember that what’s up for debate is not whether state pension incomes should go up or down, but by how much they should go up. With inflation on the rise and in the current economic climate, not too many would suggest pensioner income should fall.”
Recently, data published by the Office for National Statistics indicated the impact of the potential scrap of the triple lock on the state pension for those who could be affected by a policy change.
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 if skewed economic data is not taken into account, then earnings data could potentially be on the table.
This lower figure comes at around 3.5 percent to 4.9 percent, which would increase the annual state pension payment by £327 – saving the taxpayer £3.5billion.
It has been suggested that 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.