Under the terms of the triple lock, the Treasury must agree to increase pension payments to match the highest out of average earnings, inflation or 2.5% every year
Boris Johnson is asked if he will ditch the triple lock for pensions
Rishi Sunak is reportedly in talks to trade the Conservatives’ “triple lock” election manifesto for a ‘double lock’ next year to stop a record state pension rise in April.
Under the terms of the triple lock, the Treasury must agree to increase pension payments to match the highest out of average earnings, inflation or 2.5% every year.
However a fall in earnings during the pandemic means wages are set to rise – on paper – by more than 8% this year, a move that would bring with it a state pension rise of almost £800.
The bill will reportedly add more than £7billion to the state pensions every year if fulfilled.
That’s on top of the £305billion Covid bill already on the Chancellor’s balance sheet.
According to reports, one of the options that are being examined by the Chancellor is a “double lock”.
The plan would only be implemented for one year and would raise pensions by the larger of 2.5% or September’s Consumer Prices Index inflation.
Consultant Capital Economics predicts the Consumer Price Index to stand at 3.1% in September.
However, the firm predicts an average earnings growth of 8.5% for the quarter to July.
Using inflation would add £2.6billion to the pension bill, not even a third of the estimated £7.2billion cost of using this year’s earnings figures.
Another option that is being examined by Sunak includes using Office for National Statistics (ONS) estimates of wage growth stripping out the effect of the pandemic, or taking an average of earnings over two or three years.
A Bank of England economist has already suggested the retirement age be increased to help spread the cost of Covid.
“We’ve got to ensure fairness for both pensioners and taxpayers,” a government statement said
“The Chancellor has said previously, that the triple lock is government policy. But we’ll recognise people’s concerns.
“We will obviously keep figures and numbers under review, as we always do and take any decisions at the appropriate time.”
Last week, Cabinet minister Therese Coffey hinted the triple lock may be altered in 2022.
Asked whether the rise would go ahead, Coffey said “We’ll be looking at what is happening with earnings and that’ll guide us on what happens on the pensions rise given to pensioners next year.
“I know we need to be driven by the data.”
Caroline Abrahams, charity director at Age UK, said that there was a “copper-bottomed argument for keeping the triple lock now and far into the future” due to the UK’s less generous pension provisions than other countries.
She continued: “It is not surprising that some policymakers are arguing for a different approach on a one-off basis.
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“However, it’s asking a lot for older people to believe that any scaling back of the triple lock would only be temporary, rather than permanent.”
What is the pensions triple lock?
Despite popular belief, there is no state pension retirement ‘pot’ that is built up as we work and pay National Insurance.
Instead, the state pension for retirees today is paid by people currently working.
The state pension is usually paid every four weeks, in arrears.
Under the triple lock arrangement agreed in the Tory manifesto, the state pension must by the highest of inflation, 2.5% or average wage growth during a set period each April.
This is separate to your workplace pension which is privately invested by you and your employer. Workers over the age of 22 and earning £10,000 or more a year are automatically enrolled onto it and your employer will, in most cases, match your contributions. Anything you pay in each month is tax-free.
If you you have shortfall in your pension, you may be able to apply for pension credits to top it up.
How to prepare for retirement