State pensioners could soon see the mechanism for determining their yearly payment increase become ‘less generous’ if the triple lock is shelved, an expert has warned.
An increase of seven percent or higher is looking likely for next year, with many analysts warning large increases each year could soon make the policy unsustainable for the Government.
Phil Jelley, pensions partner at Gateley Legal, spoke to Express.co.uk about the future of the state pension.
He warned a future Government may have to replace the triple lock with a “less generous form of increase due to concerns about affordability and intergenerational fairness”.
He added: “An alternative could be a ‘double lock’ policy based on the higher of earnings or inflation or a single increase rate based on one of the two.”
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The state pension is on track for another sizable increase next April as average earnings rose 8.2 percent from April to June 2023.
The three months to July figure is used for the triple lock and as average earnings are now above inflation, which was at 6.8 percent in the latest figures, this is likely to be the figure used to determine next year’s state pension increase.
Some analysts are predicting an increase of around seven percent. This would increase the full new state pension from £203.85 a week to £218.12 a week, an increase of over £740 over the course of a year.
Mr Jelley spoke about how much payments could go up if the triple lock is retained in future years.
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He said: “The amount of increase, at least under the triple lock, depends on the rate of inflation (Consumer Prices Index) and average earnings growth over a set period.
“If either remain high and above 2.5 percent then the state pension increase will track the highest of the two.
“The Bank of England expects that inflation should fall to around five percent by the end of 2023, and keep falling during 2024 and reach the two percent target by early 2025.
“If inflation reduces as expected, and average earnings growth also drops, then the state pension increase will reduce accordingly and the large increase that we saw last year, and which is expected in 2024 will fall away.
“Should inflation and average earnings growth drop below 2.5 percent, then the third element of the triple lock, a 2.5 percent floor, will step in meaning that the state pension will increase by this amount.”
Steven Cameron, pensions director at Aegon, told Express.co.uk how much the state pension will increase in future years remains a “big unknown”.
He said: “We might in time see state pension increases return to the more modest triple lock increases of past years, with the 2.5% underpin perhaps kicking in.”
Another concern is that with rising prices, a large payment increase will be eaten away by inflation and the soaring cost of living.
Mr Cameron said: “Certainly, the state pension needs to increase in line with inflation to maintain its purchasing power.
“If it increases exactly in line with inflation, then someone whose shopping basket is exactly in line with that used to set CPI will be exactly the same.
“But if your basket is overweight in aspects where inflation remains even higher, such as food, you could still be worse off.
“If the triple lock increases in line with earnings, because above inflation, then there’s a chance of a ‘real’ gain after inflation.”
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