Changes to the pensions triple lock possible

Downing Street has given its strongest signal yet that the pensions triple lock will be watered down because of the recent surge in average earnings, which under current rules would deliver a rise of more than 8% for pensioners next year.

Boris Johnson’s spokesperson said on Wednesday 18 August there were concerns about linking the rise in state pensions to earnings. The triple lock, which remains a Conservative manifesto commitment, promises to pay either 2.5%, the rate of inflation, or the level of earnings recorded in the July employment figures – whichever is the highest. Any suspension would be a victory for the chancellor, Rishi Sunak, who has been lobbying No 10 for a temporary change to the rules.

Johnson is understood to have been reluctant to temporarily abandon the pledge, given pensioners are a key Tory voter base, but the comments from the prime minister’s spokesperson indicate Sunak’s argument for fiscal discipline around pensions has found a hearing in Downing Street. The chancellor has used an identical form of words in his public statements about the triple lock, saying any settlement must be fair to “taxpayers and pensioners”.

The Treasury has not budgeted for an increase of 8% in the state pension, and the chancellor is warning that other government spending priorities would suffer if he had to find an extra £4bn to uprate in line with earnings. Sunak is weighing up two alternatives to the triple lock, both of which would leave pensioners with an increase of about 3% next year. One would mean earnings being averaged over the past two years, with this year’s hefty rise balanced by zero earnings growth in 2020 when many workers were furloughed. A second option is to revert temporarily to the previous system of a double lock in which this year’s state pension would increase by 2.5% or the September inflation rate, if that is higher.

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Source: Techlink