Is the state pension ‘triple lock’ about to be AXED? Treasury considers suspending policy amid fears payments could rise 20% next year due to furlough distorting wage figures
- Triple-lock links pensions increases to highest of inflation, earnings or 2.5%
- But wages have been affected by furlough and experts predict a 2021 surge
- Move would prove highly contentious as it has been in Tory manifestos for years
- Here’s how to help people impacted by Covid-19
Rishi Sunak could be about to axe a Tory manifesto pledge to keep increasing the state pension as he seeks to repair the coronavirus-battered economy.
The Chancellor is said to be considering severing the so called triple-lock that links annual increases in the payment – currently £134.25 per week – to the highest out of inflation, average earnings or 2.5 per cent.
Any such move would prove highly contentious as it has been a mainstay of Tory manifestos for years.
It could also be embarrassing for Boris Johnson, as only last month the Prime Minister vowed it would be maintained, saying: ‘We are going to meet all of our manifesto commitments.’
However Treasury officials told the Financial Times that the guarantee could become unaffordable because of wild swings in average earnings in the wake of the coronavirus pandemic.
Official forecasts state that wages could soar in 2021 as they rebound from an artificial dip caused by the government’s job retention scheme.
Some 9million people currently receive 80 per cent of their wages under the furlough scheme.
The Chancellor is said to be considering severing the so called triple-lock that links increases in the payment to the highest out of annual of inflation, average earnings or 2.5 per cent.
Any such move would prove highly contentious as it has been a mainstay of Tory manifestos for years
Last night the Treasury said no decision had been made on the future of the pensions guarantee.
While April 2021 pension payments would not be hit by this year’s dip in wages – because of the 2.5 per cent minimum annual increase – the Treasury would find itself paying very large increases to pensioners the following year, based on an expected sharp recovery of wages when the furlough scheme ends.
Earnings next year compared with 2020 could well go up enormously if lots of people move from 80 per cent pay on furlough to 100 per cent of pay.
The Financial Times said forecasts of big swings in average earnings have persuaded some inside the Treasury that the triple lock needs to be suspended for at least two years: calculations for setting the rise in state pensions for April 2022 are based on average wage rises in the calendar year to September 2021.
But Boris Johnson has told Mr Sunak that any new formula for upgrading the state pension should include safeguards for pensioners, according to officials close to the talks.
Number 10 and the Treasury said in a joint statement: ‘Announcements on tax and pensions policy are for Budgets. The government is committed to supporting pensioners.’
Paul Johnson, director of the Institute for Fiscal Studies, said the government should announce a suspension of the triple lock soon.
‘Earnings next year compared with 2020 could well go up enormously if lots of people move from 80 per cent pay on furlough to 100 per cent of pay or lots of low-paid jobs disappear,’ he said.
Torsten Bell, director of the Resolution Foundation, said it was ‘inevitable’ the Treasury would have to suspend the triple lock scheme and set pension rate increases for the next two years.
The Treasury has long wanted to ditch the policy in the face of an ageing society with a rapid rise in the number of pensioners over the next two decades.
In the Office for Budget Responsibility’s 2018 fiscal sustainability report, the fiscal watchdog said the long-term cost of the triple lock would be 1 per cent of national income a year by 2068, which equates to £20bn a year in today’s prices.
The expected breaking of the triple lock, which was introduced by David Cameron’s coalition government in 2010, would start a big debate about whether it is affordable in the long run.