STATE PENSION Triple Lock is a policy designed to protect the entitlement of pensioners through annual rises. But changes could save the government over £1billion, according to new research.
State Pension Triple Lock was first introduced by the coalition government amid concerns the pension sum was not rising enough. The tripartite guarantee means that each year, the state pension increases by the greatest of either average earnings; prices as measured by the Consumer Prices Index, or 2.5 percent. For example, this tax year, the state pension rose by 3.9 percent in line with average earnings growth.
Many pensioners welcome the Triple Lock Mechanism as a way of ensuring they have enough to meet their retirement needs.
However, as the financial impacts of COVID-19 begin to be felt, it has been suggested in some quarters that a change to the policy is necessary.
Reining in the mechanism could be a solution to the growing spending undertaken by the government in recent months.
And recent research has suggested the government may be able to save upwards of £1billion even through small changes.
Analysis from Lane, Clark and Peacock (LCP) has suggested savings of £1.5billion could be made in 2022/23 and each year following if the Triple Lock is applied over two years rather than one.
The suggestion has been made after fears that alterations to earnings due to COVID-19 could see a sharp rise in the state pension sum in 2022.
LCP noted that the rise in 2021 is likely to be at 2021 due to low inflation and a potential fall in average earnings.
But if the economy recovers at the rate the Office for Budget Responsibility (OBR) is currently predicting, it could mean a substantial uprating in the following year.
The LCP report has therefore suggested that applying the principles of Triple Lock over two years rather than one could be advantageous for the government.
Sir Steve Webb, former pensions minister and partner at LCP, commented on the impact of Triple Lock.
He said: “The basic idea of the triple lock was to make sure that pensioners maintained their real living standards, did not fall behind the working age population and never faced a derisory cash increase.
“But the triple lock was not designed for times like these.
“If the Chancellor is keen to keep the spirit of his manifesto commitment but to avoid a surge in the state pension, a ‘two year triple lock’ could be the answer he favours.”
Of course, what to do with the Triple Lock is a highly contentious decision.
Regardless, any plan put forward is likely to be intensely debated.
Bob Scott, senior partner at LCP, also remarked on how the state pension currently operates, stating: “The whole area of state pension increases has become highly politicised from year to year.
“Once the present crisis is over, there is a case for stepping back and asking what the state pension system is trying to achieve and what this implies for the right level of the state pension.
“The process of annual indexation could then be based on those principles rather than short-term political considerations.”
Whatever happens to the state pension going forward, it is thought any changes could be announced in the Chancellor Rishi Sunak’s upcoming Budget.
The financial statement is hotly anticipated and will probably lay out the government’s approach to the ongoing crisis.
However, members of cabinet and the Prime Minister himself have said there are no plans to alter Triple Lock.
Mr Johnson remarked to a select committee that he had no plans to break any of his manifesto commitments.
And Foreign Secretary Dominic Raab said that while he did not wish to speculate on the Chancellor’s Budget, there were no plans to touch Triple Lock.