Skewed economic data may see pensions soar, but Sunak could step in
THE SYSTEM GIVETH, AND THE SYSTEM TAKETH AWAY
PENSIONERS could be set for a welcome leap in their income next year - unless the Chancellor intervenes to stop it happening.
Pension increases are linked to rises in earnings and prices under the “triple-lock” policy, guaranteeing pensions do not shrink in value.
But the trouble is that if average earnings plummet – as they did during the pandemic – and then rise quickly again during the recovery, the policy requires that pensions do not shrink with falling earnings, but do go up at the same rate when they rise again.
The Express has reported that, as a result, the state pension is on track to grow at the fastest rate in more than a decade, rising by £882 next year.
However, Chancellor Rishi Sunak is reportedly not keen on giving pensioners such a significant boost.
Earnings data published by the Office for National Statistics last week showed growth was at 8.8 per cent due to the economy bouncing back after months of mass redundancies, wage cuts and furlough, which caused a steep fall in average earnings due to the coronavirus pandemic.
Mr Sunak, is said to want to avoid using skewed economic data to keep the guarantee on its feet, and instead use “underlying” earnings data, which strips away the abnormal effects of the pandemic.
This lower figure would mean an increase of less than five per cent and would increase the annual State Pension payment by £327, a move
that would save the government £3.5 billion.
However, it would deny the UK’s 12.4 million pensioners a historic boost.
The Express calculated that if those turning 66 this year lived to be 85, they would miss out on a total of £11,866 compared to if pensions just increased at 2.5 per cent each year.
Whatever the decision made by the Chancellor, the smoothing over is likely to be a highly contentious issue in the months to come.
Not only will scrapping the triple lock break a Tory 2019 manifesto pledge, it is also likely to hurt some of the most vulnerable members of society, as well as push hard on the government’s plans to recover economically from the coronavirus crisis.
Ian Browne of Quilter, an investment group, said: “The latest data suggest the Chancellor’s worst fears will become reality and he’ll either have to spend billions extra on the state pension next year and forever after, or make a political challenging decision to tweak the triple lock or scrap it entirely.”
Steven Cameron, of pension provider Aegon, said: “If this trend continues, we could even it go into double figures, meaning if the triple lock is not fudged in some way, state pensions could go up by more than 10 percent.”
This would cost the Treasury up to £9 billion, he estimated.
Andrew Tully, of Canada Life, a pension provider, supported a move to strip out the artificial earnings growth, claiming it would be the best compromise for the government.
He said: “The State Pension would still increase by a material amount, hopefully seen as fair in these exceptional circumstances, and making sure manifesto pledges are met.”