The government is openly considering making changes to the triple lock formula for increasing the state pension in April. While this may just be a political test, it signifies serious consideration.
Introduced by the Conservative-Liberal Democrat coalition after the 2010 election, the triple lock guarantees pensioners an annual increase based on the highest of average earnings, inflation, or 2.5%.
The inflation component of the triple lock is determined by the September annual rate, which is released in October. Currently, it is projected to be around 7%.
Annual earnings are calculated from May to July and include regular pay and bonuses. However, the figure for total pay this year has been distorted by one-off payments to NHS staff and civil servants made in June and July.
According to the Office for National Statistics, these exceptional payments resulted in an average annual increase of £1,400 in bonus payments to the public sector during the three months up to July. This also raised the annual earnings increase for the entire economy from 8.4% to 8.5%.
The ONS notes that the May to July earnings figures are provisional and may be revised next month. Nevertheless, it appears likely that next year’s pension increase will be based on earnings rather than inflation.
Whitehall is now considering adjusting the earnings figure to be based on regular pay (at 7.8%) or a measure of total pay unaffected by NHS and civil service payments. This would reduce next year’s pension increase by 0.5 to 0.7 percentage points and potentially save the Treasury up to £1 billion.
The full state pension currently stands at £203.85 per week. If it were increased in accordance with an 8.5% earnings growth, it would rise to £221.18 per week. Based on 7.8% earnings growth, it would increase to £219.75 per week.
There is precedent for this situation. Earnings surged as businesses reopened after the Covid lockdown, and the government temporarily suspended the triple lock. However, given total public spending well over £1 trillion annually, the savings would be modest. The final decision rests with three ministers: the prime minister, Rishi Sunak, the chancellor Jeremy Hunt, and the work and pensions secretary, Mel Stride. They may conclude that risking the anger of pensioners so close to an election is not worth it.
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