The State Pension 'triple lock' temporarily suspended
The 'triple lock' refers to a Government policy that ensures State Pensions rise every year by either the average earnings growth, inflation (as measured by the Consumer Prices Index) or a flat 2.5% - whichever is highest that year, hence the name “triple” lock. It was designed in principle to make sure that state pension value would always have the best growth outcome each year for taxpayers.
Secretary of State for Work and Pensions, Thérèse Coffey, announced on Tuesday 7th September that this triple lock protocol would be suspended. The average earnings component is to be excluded and the triple lock is to be temporarily replaced with a ‘double lock’ of inflation and the flat 2.5%.
She commented that earnings between May and July were expected to rise by more than 8%, so a one-year adjustment was needed to account for the “statistical anomaly”.
Who will be affected by this suspension?
Unsurprisingly, pensioners are expected to be the most badly affected by the change. According to the Office for Budget Responsibility (OBR), pensioners were originally on track to receive a record 8% boost to their state pension next year thanks to the effects of the furlough scheme, a figure Coffey claimed was “skewed and distorted” by the unprecedented economic turmoil surrounding the pandemic.
Coffey explained that, amoung other things with so many workers coming off the furlough scheme at the same time as the country is coming out of lockdown, this has artificially inflated the average wage statistics far beyond what they would be normally.
This comes as a second disappointment after the Prime Minister’s recent announcement of the 1.25% National Insurance and dividend tax hike, as this will also impact state pension age workers from 2023.
Young people are also expected to be impacted by the suspension of the triple lock, if this suspension becomes a more frequent occurrence. The troubling financial prospects many young people are facing will be potentially compounded by a slackening of financial security in the longer term.
Increasing the state pension gradually ensures that at the very least young people will have a healthy state pension to depend on when they reach retirement age. Many are concerned, that this could be a step towards reforming or dismantling the triple lock, which would mean that both young and older people will be negatively affected.
What does this mean going forward?
Charities that represent state age pensioners have concerns that the suspension may be a step towards dismantling the triple lock altogether. Following on from this, Age UK charity director Caroline Abrahams responded by saying that there was “a strong case” for not suspending the triple lock as more than two million pensioners are currently already living in poverty.
Ultimately, Coffey assured MPs that this would only be a temporary adjustment, and not a step in the direction of dismantling the triple lock as some fear.
"It will ensure the basic and new state pensions increase by 2.5% or in line with inflation, which is expected to be the higher figure this year, and as happened last year, it will again set aside the earnings element for 2022-23 before being restored for the remainder of this Parliament."
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