State pension triple lock fears as future retirees could lose out on £17,000
Sunak should 'step away' from pension triple lock says Gauke
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The state pension triple lock has been the subject of much debate and consternation in recent months, as pressure builds on Rishi Sunak and the Conservative Government to make a decision on whether or not the policy will be honoured. Any decision is likely to cause upset, but a finance expert has revealed that younger people could be the worst affected by any change to the triple lock.
Zoe Stabler, Investment Writer at Finder.com, explained the benefits of the triple lock in its current form.
She said: “The pensions triple lock currently ensures that the amount pensioners receive as a state pension is adjusted in line with inflation.
“This is essentially to make sure the buying power of the money received stays the same.”
Ms Stabler explained: “The current system means that the state pension is raised by at least 2.5 percent each year.
“That would be the case even if the price of goods and services or average earnings were to never change.
“The main benefit of the triple lock is that it ensures that the state pension has consistent — or better — spending power,” she added.
Ms Stabler said that younger people could be hit hard if the government decides to scrap the triple lock.
“If the triple lock is scrapped, it would mainly impact younger people,” she said. “Anyone currently approaching retirement has benefitted from a small raise from triple lock and would be at a slight disadvantage.
“We’re talking about two to three percent per year, but younger age groups simply won’t have the same amount of money in real spending terms if it’s not frequently raised to match or exceed inflation.”
Ms Stabler explained: “A current 25-year-old retiring in 2064 could receive a state pension of £27,000 if triple lock remained and inflation or annual earnings didn’t ever go above 2.5 percent. If triple lock is removed, that figure could remain unchanged at £9,339.”
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She concluded: “That is far below what is needed to retire comfortably and means that younger people could be losing out on £17,000 in this instance.”
The state pension triple lock was brought in to ensure that the rate of state pension remains fair for pensioners over time. The policy means that basic state pension must be increased by the largest of three figures, hence ‘triple lock’.
The three figures used are the rate of inflation, the average earnings growth, or 2.5 percent. Whichever of these would bring the biggest increase the basic state pension is the one which is used.
However, there has been discussion this year as to whether the triple lock should be scrapped. The reason for this debate centres around the fact that the increase to state pension this year is likely to be much higher than it ordinarily would.
It appears that this year, the highest of the three factors would be average earnings growth. That would mean an increase to basic state pension of 8.8 percent, based on official figures from June. However, it is believed that this number has been artificially inflated due to temporary factors related to the COVID-19 pandemic. This means that the average earnings growth figure may not be quite as it seems.
This has prompted concern and speculation from observers that the government may decide not to honour the triple lock, or to make changes to the policy. If a change is made, it is possible that pensioners across the UK will be negatively impacted if they receive less than they were expecting.
Chancellor of the Exchequer, Rishi Sunak has failed to rule out making changes to the triple lock. In an interview with the BBC in July, Mr Sunak would not confirm that the policy would be honoured this year.
He did say that he would approach a decision on the policy with “fairness in mind for pensioners and taxpayers”.
A decision from Mr Sunak is expected this Autumn, but Prime Minister Boris Johnson would not be drawn into giving anything else away with regard to the triple lock. The Prime Minister said of Mr Sunak’s impending decision: “I think you’ll have to wait and see what the Chancellor comes up with.”
If alterations are indeed made that effectively circumvent the triple lock, the government may face criticism from pensioners. The policy has been in use for a decade, having been introduced in 2011, and Mr Johnson promised to maintain it during the 2019 election.
Keeping the triple lock at 8.8 percent would mean additional funds coming out of the government and going into the pockets of pensioners. The Institute for Government revealed that using the rate of inflation instead of average earnings growth could save the government around £1.4billion.
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