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:
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.
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