Chancellor Rishi Sunak is looking to raise funds to help the UK economy recover from the coronavirus pandemic. Reports in recent months have been rife with speculation over which taxes could be hiked or reformed to help raise cash for the Treasury. One change that has been hinted at by Mr Sunak himself is making changes to, or even abolishing, the pension triple lock. The triple lock works as follows.
At present, the state pension increases each year in line with the rising cost of living seen in the Consumer Prices Index (CPI) measure of inflation, increasing average wages, or 2.5 percent, whichever is highest.
Average earnings have been the key part of the debate in recent months – official forecasts suggest that average earnings will be the highest of these three, by a considerable margin.
Predictions by the Bank of England suggest that average earnings could go up by 8 percent.
This has sparked concerns that young people who have suffered from unemployment or wage reductions during the Covid crisis may end up paying more for state pensions of older citizens.
Pension expert Steve Cameron has told Express.co.uk that Mr Sunak will probably have to at least partially break his 2019 manifesto pledge to maintain the triple lock.
He said: “The Conservatives vowed to keep the triple lock in 2019, but quite clearly at that point we were about to have a pandemic. The world has changed.
“When something significant changes, I’m not suggesting you should give up manifesto pledges without serious thought, but sometimes for fairness you might need to make changes.
“I would be surprised if Rishi isn’t at least considering changes.”
Mr Cameron explained that the Chancellor won’t want to make drastic changes, but will nevertheless want to ensure the system is made fairer.
He highlighted certain impacts of the pandemic have affected pensions, and how Mr Sunak could seek to correct this.
Mr Cameron continued: “I think he will want to stick to the spirit of the triple lock, so I don’t think for a minute he will scrap it entirely.
“I think he will try and adapt the triple lock given the way earnings have moved. He could possibly smooth the earnings figures over two years or maybe even three years.
“An alternative is to strip out the effects of the pandemic on national average earnings growth, and that’s the one that has been talked up in recent months.
“The Office of National Statistics (ONS) last month produced its earning figures, and showed what earning growth would have been if you stripped out furlough and it also considered that most jobs lost during the pandemic were lower paid jobs.
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“This month, they also gave an indication of how earnings have moved over two years – they have gone up by 7.1 percent, but over the last year, it has been 8.6 percent.
“There will be an adjustment, it will be to use the average figures or take out the distortions caused by furlough and the pandemic.”
The Telegraph revealed last month that Treasury officials were looking at three major reforms to how pension contributions are taxed to cover heightened pandemic spending.
But there was push-back from some senior Tories to the ideas being pursued, in a reflection of how politically challenging major pensions reforms would prove.
One minister with an economic brief stressed that Conservatives should be encouraging people to put into their pension pots rather than making changes that could discourage it.
The source told The Telegraph: “Anything to do with pensions, because it’s such a long-term gain, we have to proceed with caution. If we do anything radical you need to build consensus across Parliament.”