The State Pensions Triple Lock will be disapplied for 2022/23

Share

The Department for Work and Pensions (DWP) has announced the Triple Lock will become a Double Lock for the coming year only.

During the Prime Minister’s long awaited announcement about Social Care reform, combined with national insurance (NIC) increases, the DWP also issued a statement on how it would handle another tricky issue: the operation of the Triple Lock for 2022/23 State Pension benefits.

The DWP’s solution is more brazen than some had expected: the earnings element of the Triple Lock will simply not apply for increases from next April. Instead, for 2022/23 only, the basic and new State Pension will increase by the greater of:

  • 2.5%; and
  • CPI inflation to September 2021.

The latest (July) reading of the CPI is 2.0%, although the Bank of England’s Monetary Policy Report projected it to be around 3% by September.

The DWP estimates that growth in earnings to July (the Triple Lock’s previous earnings benchmark) would be ‘between 8% and 8.5%’. The latest reading (for June) is 8.8%. What some commentators had suggested was that the earnings measure could be averaged over two years, i.e. looking back to pre-pandemic 2019. The July 2020 earnings growth was -1.0%, which pointed to a ‘normalised’ growth of about 4% a year. By ditching earnings completely, the DWP avoids all of the impact of the real (i.e. above inflation) earnings growth seen as the UK economy has recovered.

The DWP estimates that the switch to a 2.5%/CPI Double Lock will ‘…mean a difference of around £4 or 5 billion in basic and new State Pensions expenditure in 2022/23, when comparing with the higher of 2.5% or expected price inflation.”

That is a coy way of describing the true impact. The saving is not a one-off, but an annual reduction in expenditure as all future increases will be from a lower base than would otherwise have been the case. Viewed another way, the Double Lock tweak is worth about a third of what the NIC and dividend tax increases announced will produce each year. It might have been more honest – if politically unwise – to have included the measure in the bundle social care announcements.

Although, as we have noted before, the Triple Lock is not in legislation, the Double Lock will require the DWP to introduce a Social Security Uprating and Benefits Bill, just as it produced a one-year-only Act last year to cope with negative earnings growth. The problem for the DWP is that the law still says basic and new pensions increase in line with earnings.

If you would like to discuss the effect this may have on your pension, please contact us here.

Articles on this website are offered only for general information and educational purposes. They are not offered as, and do not constitute, financial advice. You should not act or rely on any information contained in this website without first seeking advice from a professional.

Past performance is not a guide to future performance and may not be repeated. Capital is at risk; investments and the income from them can fall as well as rise and investors may not get back the amounts originally invested.

You are now departing from the regulatory site of Finura. Finura is not responsible for the accuracy of the information contained within the linked site.

Sources: Techlink

Share

Other News

Tax year end planning checklist for individuals – 2021/22 tax year

A handy checklist of suggested planning considerations for individuals for the end of the tax year.

Property & Mortgage Outlook – January 2022

Average UK property prices hit a new record high at the end of 2021, making it the strongest calendar year for price growth since before the Global Financial Crisis (GFC) in 2008.

Financial Resolutions for 2022

If getting your finances in order is on your to-do list, here are some tips to help you get started.