One-year triple lock adjustment could save govt £5bn in 2022/23

The government’s temporary state pension triple lock adjustment could save it £5bn, after growth in average total pay increased to an “inflation busting” 8.3 per cent in the three months to July.

The government previously announced plans to remove the earnings link element of the triple lock after the impact of the pandemic caused "unique" labour market distortions, rendering the earnings measure a "statistical anomaly".

Hargreaves Lansdown senior pension and retirement analyst, Helen Morrissey, acknowledged that the latest figures will therefore be a “bitter disappointment for many pensioners not to benefit from this morning’s bumper increase, which would have put an extra £14.90 per week into their pockets if they were on the new state pension and £11.42 for those on the basic state pension”.

“However, it is well known earnings data has been distorted by the effect of furlough and to award such increases at a time when the working population is struggling with the fall out of the pandemic would not have been popular,” she added.

Morrissey also explained that while the data stripped out some of the distorting effects of the pandemic, this would have nonetheless left the door open for rises of somewhere between 3.6 per cent and 5.1 per cent, suggesting that an increase towards the upper end of this scale may have been seen as unfair.

“We will wait to see what the future holds for the triple lock after this year’s suspension and await next month’s inflation figures to see what next year’s increase is likely to be," she said.

Adding to this, Aegon pensions director, Steven Cameron, highlighted the figures as an indication of how much the government has saved by removing the earnings element, estimating that, if the triple lock had remained untouched, an “unrealistic” increase of 8.3 per cent in April would have cost the government around £7.5bn next year.

He continued: “The pandemic has created huge distortions to the average earnings figures with a fall in earnings at the start of the pandemic followed by a very sharp increase as furlough ended,” he added.

“But Thérèse Coffey’s announcement last week to suspend the triple lock for a year, will now mean the state pension increases by price inflation or 2.5 per cent, whichever is higher.

"It is expected inflation will trigger the increase, and if this figure is around 3 per cent, the government will save the around £5bn moving to the ‘double lock’."

Furthermore, whilst previous research from AJ Bell had suggested little support for state pension changes, with just 8 per cent of people supporting any change to the triple lock, further research from the firm, published today (14 September), has revealed that there may be support for further adjustments.

In particular, it found that more than one-in-three people (37.5 per cent) aged between 50 and the current state pension age, 66, would consider taking their state pension early at a lower rate if the option was offered.

Commenting on the findings, AJ Bell head of retirement policy, Tom Selby, said: “Increases in the state pension age – particularly those that affected 1950s-born women – have been hugely controversial in recent years and sparked debate about the fairness of the current system.

“In particular, significant differences in life expectancy in different parts of the country have led to concerns the least well off are losing out. For example, according to official data someone born in Blackpool can expect to live, on average, a decade less than someone born in Westminster.

“Allowing early state pension access at a reduced rate would potentially help address this unfairness. What’s more it could be popular, with more than a third of people aged 50 to 66, the current UK state pension age, saying they would consider this if it was offered as an option by the government. Offering this option could also be cost neutral for the Treasury over the long term"

However, Bell warned that enabling early access would add extra complexity to the system and might result in people choosing to get their state pension as early as they can, without considering the impact on their retirement plans over the longer term.

“This could also have implications for the Treasury, which would potentially face a short-term cashflow problem if lots of people decided to take their state pension before age 66," he said.

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