Govt could ditch state pension triple lock despite manifesto pledge

Chancellor, Rishi Sunak, is considering breaking the Conservative Party’s manifesto pledge of keeping the triple lock on state pensions due to the economic fallout surrounding the coronavirus, according to the Financial Times.

The publication reported that the treasury is concerned about forecasts for strong wage growth in 2021, when workers’ salaries are likely to recover from the lows caused by furlough under the Coronavirus Job Retention Scheme.

This is problematic as the triple lock ensures that state pensions rise every April based on whichever is higher out of wages, inflation or 2.5 per cent.

The policy was introduced by David Cameron’s coalition with the Liberal Democrats 10 years ago.

Aegon pensions director, Steven Cameron, explained that “a sharp dip in average earnings this year followed by a quick and full recovery the next”, likely driven by furloughed employees on 80 per cent pay returning to full-time work, could therefore result in pensioners being granted “a 2.5 per cent minimum increase next year and potentially put them on track for a double digit increase in 2022”.

He added: “Blindly following that formula now as we move through and out of the coronavirus crisis with huge distortions to average earnings expected could create bizarre results which were never intended and which would fail any test of intergenerational fairness.”

“The government needs to explore ways of offering state pensioners a fair deal, with longer term security, while removing the effect of average earnings distortions likely in the coming years,” Cameron concluded.

The potential increase in triple locked state pensions over the next two years was mooted at as much as 21.3 per cent in research released by Willis Towers Watson last week, while the government had been urged to scrap the scheme by the Social Market Foundation back in April.

The Telegraph reported that an internal Treasury document had encouraged Sunak to bin the policy to try and regain some of the government’s financial losses resulting from the Covid-19 pandemic in mid-May.

However, on 27 May Pensions Minister Guy Opperman stated that the government had not had recent discussions on the matter.

Canada Life technical director, Andrew Tully, commented: "It’s unclear at this stage if Rishi Sunak is proposing a long-term change to the triple lock, or simply a change for the next year or two, due to the fact the calculation basis for the earnings part of the triple lock could result in a significant increase.

“If it is a longer-term change, a move to a double lock of inflation, or earnings growth, would safeguard pensioners to a significant degree and mean state pensions won’t fall behind the cost of living or increases in average earnings. However, the savings for government in moving to a double lock are modest compared to a more fundamental change.”

TUC general secretary, Frances O’Grady, said: “The triple lock is vital for increasing our state pension, which is one of the lowest in the developed world. 

“Boris Johnson promised to honour his manifesto pledge to keep the triple lock just last month. Pensioners should be protected from the impact of any fall in wages or inflation this year.”

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