Ministers considering way to cut cost of triple lock pension increase
Pensioners may not get a bumper 8.5% increase in the state pension next year as ministers try to limit the cost to the taxpayer.
Under the triple lock – which guarantees an increase in line with average earnings, inflation or 2.5%, whichever is highest – pensioners would have been in line for a rise linked to wages from April.
But ministers are considering whether to strip out the impact of public sector bonuses on the earnings figure, which could mean an increase of around 7.8% instead, potentially saving the Government hundreds of millions.
That could result in some pensioners losing out on around £75 a year compared with an 8.5% rise.
Any attempt to tinker with the triple-lock mechanism would be highly controversial, but Work and Pensions Secretary Mel Stride stressed the need for any increases to take into account “affordability and the position of the economy”.
Mr Stride said the Government remains committed to the triple lock.
But asked whether that would be based on earnings including bonuses, the 8.5% figure, he told BBC Radio 4’s World At One: “There clearly is a difference if you take into account the non-consolidated elements of pay in recent times, but these are all decisions that I have to take with the Chancellor as part of a very clear process, a statutory process actually, that I go through in the autumn.
“So I didn’t want me to get into the weeds of exactly how I’m going to go about that. But the overarching point about the triple lock is that we remain committed to it.”
Put to him that he was not ruling out using a lower figure based on earnings without bonuses, around 7.8%, Mr Stride said: “I’m not going to get drawn into those kinds of questions.”
Estimates on average earnings are produced by the Office for National Statistics (ONS), with the figure for May-July typically used for that element of the triple lock.
The ONS said annual growth in regular pay excluding bonuses was 7.8%, but one-off payments in the NHS and civil service increased the overall average including bonuses to 8.5%.
No final decisions have yet been taken on the application of the triple lock, and the figures from the ONS could still be revised next month.
But while Mr Stride stressed that the triple lock remained in place, he acknowledged that in the long-term it was “not sustainable”.
Prime Minister Rishi Sunak recently declined to say if the policy would feature in his party’s manifesto at the general election expected next year.
And Labour’s deputy leader Angela Rayner refused to commit her party to the policy, telling the BBC: “We will have to see where we are when we get to a general election and we see the finances.”
An 8.5% rise in the full new state pension could take it from around £204 per week to £221, or from around £10,600 to around £11,502 annually.
But a smaller rise of 7.8% would instead take it from around £204 per week to around £220, or around £11,427 annually.
A rise in the basic state pension of 8.5% would take it from around £156 per week to just under £170, or from around £8,122 to £8,814 per year.
But a 7.8% rise would mean an increase in the basic state pension to around £168 per week or around £8,756 per year.
Sir Steve Webb, a former Liberal Democrat pensions minister who is now a partner at LCP (Lane Clark & Peacock) said: “It would be totally unacceptable for the Government to fiddle the definition of earnings that has been used since the triple lock was first introduced, simply because the answer is inconvenient.
“Using a lower measure would cost someone on the new state pension around £75 per year and would be bound to create a political storm, especially in the run-up to a general election. The whole point of the triple lock is that it is a formula which forces chancellors to prioritise the state pension through thick and thin. The triple lock manifesto promise has been broken once in this Parliament already and would lose all credibility if it was broken again.”