State pensioners could see a smaller increase in their payments than expected next year, should new triple lock changes come into effect.
According to a Telegraph report, the Treasury could be considering stripping out the impact of bonuses in the wage growth metric of the triple lock.
To ensure the state pension doesn’t lose value in real terms, the triple lock was introduced just over a decade ago to provide state pensioners with a pay rise every year in line with some form of inflation.
By honouring the triple lock, the highest percentage out of three different values – wage growth, inflation, or 2.5 percent – is used to determine how much the state pension will increase in a new tax year.
Wage growth has always been calculated to include bonuses and should that remain, analysts anticipate the state pension to rise by 8.5 percent next year, according to Office of National Statistics (ONS) figures released today.
However, with the unexpected and large increases in one-off bonuses awarded this year, such as those to NHS workers and civil servants as part of pay settlements following strikes, the Treasury could be considering stripping out bonuses in this year’s metric.
This means the state pension would only rise by 7.9 percent next April instead, which could leave 12 million pensioners out of pocket by £74.
It is expected the move would save the Treasury a figure in the high hundreds of millions of pounds.
However, such considerations are expected to be heavily scrutinised by groups advocating for the triple lock as a vital tool to reduce pensioner poverty.
Becky O’Connor, director of public affairs at PensionBee, said: “The state pension forms a large proportion of most people’s retirement income – some people have nothing else at all in old age.
“It’s vital that older people are kept out of poverty and that their incomes rise by enough to continue to meet basic living costs.”
Ms O’Connor added: “While there is a case to review the triple lock and make sure it is working as it should, its purpose – to ensure older people are at least able to eat and heat their homes, must be honoured.”
However, Jason Hollands, managing director at wealth management firm Evelyn Partners, said the fact that the state pension could be set to rise by at least 8.5 percent in April will “inflame an already divisive” triple lock debate.
Mr Hollands said: “The cost of the state pension is already expected to outweigh combined spending on education, policing and defence in the next two years.
“With none of the leading parties willing to question the affordability of the triple-lock in the run-up up to a General Election, this presents a significant challenge to the public finances and will limit the Chancellor’s options for announcing any pre-election tax cuts.
“The Office for Budget Responsibility has noted that, as the ‘baby boom’ cohorts enter retirement and high inflation ratchets up the cost of the triple lock, state pension spending is expected to be £23billion (in today’s terms) higher in 2027-28 than at the start of the decade.”
Mel Stride, the Work and Pensions Secretary, declined to rule out the change during an interview on BBC Radio Four’s World at One on Tuesday.
He said: “We have known for a long time that in the very, very long term, you are absolutely right, [the triple lock] is not sustainable. But, of course, what I am dealing with is now and where we stand at the moment is that we remain committed to the triple lock and that is the path that we will be taking. But as to the future and after future general elections and so on and so forth, who knows. But that is the position we are in at present.”
The triple lock figure is taken from the rates recorded in September, and the announcement is then unveiled in the Autumn Statement in November.
The rise then comes into effect in April of the following year, however, eligible pensioners won’t typically see the change until the first Monday of the tax year.
