State pension guarantee under threat despite Boris Johnson’s triple lock commitment

The triple lock mechanism for the state pension was introduced by the Conservative Party in 2011. However, the system is something which Chancellor of the Exchequer Rishi Sunak is thought to be set to address following the coronavirus crisis.

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Currently, the new and basic state pension rises each year by whichever is the highest out of the average percentage growth in wages in Great Britain, the percentage growth in prices in the UK as measured by the Consumer Prices Index (CPI), and 2.5 percent.

However, an official forecast has found that due to the coronavirus crisis, in 2021, the current triple lock system could see state pensions soar by 18.3 percent.

As such, it’s been suggested that Mr Sunak may announce a temporary suspension or amendment of the triple lock.

Professor Charles Sutcliffe, Professor of Finance at Henley Business School said: “Since 2011 the UK has had a ‘triple lock’ on annual increases in the state pension; which must rise by at least the highest of inflation, average earnings growth and 2.5 percent.

“The Social Market Foundation has estimated that removing 2.5 percent to leave a ‘double lock’ would save the government £4billion per year.

“Since over eight million UK workers have been furloughed on 80 percent of their wages, average earnings are forecast by the Office for Budget Responsibility (OBR) to drop by 7.3 percent in 2020.

“So state pensions will rise by the guaranteed minimum of 2.5 percent.

“For 2021, after the furlough has ended, average earnings should rise by 7/93 = eight percent, while the OBR has forecast they will increase by 18.3 percent.

“If this OBR forecast is correct, unless the rules are changed, state pensions will also rise by 18 percent.

“To avoid such a very large increase in state pensions, the government is likely to announce a temporary suspension of the average earnings aspect of the triple lock.”

A change to the triple lock is also something which Steven Cameron, Pensions Director at Aegon, has suggested may be on the horizon.

However, ahead of Mr Sunak’s summer statement, he suggested it may be something that’s announced later this year, in the Autumn 2020 Budget.

Mr Cameron said of the emergency economic and investment update: “With initial expectations of a full-blown emergency Budget quickly dampened, we expect more fundamental changes, for example any adjustment to the state pension triple lock, to be deferred until the Autumn Budget.

“The Chancellor has already shown he’s more than capable of introducing truly radical and unprecedented measures so we could be in for some surprises.

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“But deferring decisions until the Autumn will offer Sunak more time to assess how the economy performs over the summer months as lockdown unwinds.”

He went on to add: “The triple lock under which state pensions increase at the highest of price inflation, average earnings growth or 2.5 percent a year was set in a very different pre COVID-19 age when price and earnings growth tended to be relatively stable year on year.

“Blindly following that formula now as we move through and out of the coronavirus crisis with huge distortions to average earnings expected could create bizarre results which were never intended and which would fail any test of intergenerational fairness.

“If as a result of the furlough scheme we see a sharp dip in average earnings this year followed by a quick and full recovery the next, the triple lock would still grant pensioners a 2.5 percent minimum increase next year and potentially put them on track for a double digit increase in 2022, while those of working age might have simply regained their pre COVID-19 earnings.

“The Chancellor will have to make a call as to whether to suspend the earnings related element or perhaps adjust it to smooth out sharp fluctuations or to make a more fundamental change, with some people viewing it as overly generous.”

In May this year, Prime Minister Boris Johnson addressed the triple lock mechanism, while appearing in front of the Commons Liaison committee.

Conservative MP Mel Stride asked Mr Johnson whether he would honour the party’s manifesto commitments, with specific reference to the triple lock.

Mr Johnson replied: “We are going to meet all of our manifesto commitments, unless I specifically tell you otherwise.

“It’s an important point, and we won’t be blown off. Of course, we are on track to delivering these things.

“We will deliver 40 new hospitals, we are well on track to delivering 20,000 more police officers, and we will recruit 50,000 more nurses. Heaven knows the need for those have never been more apparent.

“We are going to get on with our programme, and we have a fantastic agenda for this country for uniting and levelling up.”

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