- Recently, the UK government has confirmed a one-year suspension of the triple lock formula for annual state pension increase.
- Work and Pension Secretary Therese Coffey has said the state pension will be determined by either 2.5% or the inflation rate.
- The suspension of the Triple lock will cost an average of £2,600 each over five years to the pensioners and will save £30.5 billion for the Treasury.
The UK government has recently confirmed a one-year suspension of the triple lock formula for annual state pension increase as the post-pandemic increase in average earning lead pensions increase by 8%, which means that state pension should rise by a similar amount, making it unaffordable.
The Boris Johnson government promised to continue raising the state pension in line with average earning, 2.5% or the annual inflation rate, whichever is greater in their 2019 manifesto. However, increasing growth in earning and inflation may result in pressure of additional pension bill of £4 billion on the Treasury. So, the UK government breached manifesto commitment by suspending triple lock and increasing National Insurance to fund health and social care.
Work and Pension Secretary Therese Coffey has said the state pension will be determined by either 2.5% or the inflation rate.
For those who reached state pension age after April 2016, the full, new flat-rate state pension is £179.60 a week and for those who reached state pension age before April 2016, the full, old basic state pension is £137.60 a week and may also get a Pension Credit top-up.
The suspension of the Triple lock will cost an average of £2,600 each over five years to the pensioners and affecting millions of students, pensioners and workers. For students and young workers it will lower the state pensions when they come to retire and for pensioners it means a smaller than expected increase to their income next year. The suspension will save £30.5 billion for the Treasury, but at a great loss to pensioners.
The earning figures are misrepresented by the pandemic and do not reflect a genuine increase in living standards amongst people of working age. The UK government can adjust a rational estimate to keep the earning link while avoiding a bloated increase. However, suspending the triple lock just as inflation takes off will be harsh on pensioners. Retired households will be hit harder than younger workers, when utility and prices bill start to rise.
Source: Copyright © 2021 Kalkine Media
Also read: What is The Triple Lock on Pension Saving?
The triple lock was introduced in 1980 by George Osborne to delink the pension from earnings and address the significant decrease in state pensions relative to working age incomes and an increase in poverty among the retired. Yet, in Organization for Economic Co-operation and Development (OECD) countries state pensions currently are lower than their 1979 level relative to earnings and the average level.
So, scrapping the triple lock, probably for short-term basis may be dangerous for the pensioners and the country. There is a narrative that retired households have done better than young working families, but not all pensioners are comfortably off. Over two million pensioners live in poverty and around a quarter rely on means tested benefits. Also, credits are missing out for almost a million pensioners. Many pensioners have other private planning.
Private pensions are now largely related to stock market and the pot can deplete exhaust over time, as for annuities, rates are low and protecting against increasing prices is expensive.
Former Conservative pensions minister Baroness Almann is campaigning to stop the suspension. She added that scrapping the triple lock would be a betrayal of current and future pensioners and will affect the poorest retirees in the country.