END OF PENSION TRIPLE LOCK?
Tory pledge may be suspended for 2 years to avoid paying out 20% more
‘It is very hard to justify’
‘Make very hard choices’
THE triple lock protecting the state pension is set to be suspended after ministers were warned it could lead to a near-20 per cent increase in payments.
Chancellor Rishi Sunak is considering a two-year suspension of the flagship Tory pledge because of ‘anomalies’ caused by the coronavirus response.
The triple lock guarantees that the state pension will rise each year in line with either average earnings, inflation or 2.5 per cent, whichever is the highest.
But with the Treasury’s furlough scheme suppressing wages this year, officials predict the triple lock could deliver a rise of close to 20 per cent in the state pension in 2021 if wages bounce back. Downing
Street yesterday insisted there were ‘no plans’ to scrap the triple lock, which was a commitment in the Conservatives’ election manifesto last year.
But the PM’s press secretary acknowledged the Government ‘cannot hide’ from the turmoil created by the lockdown.
He told reporters: ‘ On the triple lock, these are unique and challenging ecorent nomic circumstances and we cannot hide from that. As you know decisions on tax and pension policy are set out at budget.
‘But there are no plans to abolish the triple lock, and we will always stand by pensioners.’
Almost nine million workers have been ‘furloughed’ since lockdown began under the Government’s job retention scheme, under which the state pays 80 per cent of their wages. The development means that average wages are expected to be artificially depressed this year.
Officials expect them to bounce back sharply once the furlough scheme is ended in the autumn, with a huge potential impact on pensions in 2022.
A government source said internal Treasury analysis predicted the triple lock could see pensions rise by 18 per cent in 2022 if they remain in line with average earnings. This would result in the £134.25 a week payment rise by £24.17 in a single year. Officials believe the artificial impact on pay of the job retention scheme could also affect the formula for pension payments the following year.
Sources suggested the move could add £20billion to the welfare bill at a time when the public finances have already been driven deep into the red by the impact of lockdown.
One source said: ‘It is very hard to see how you would justify handing an increase on that scale to pensioners at a time when many young people may well have lost their jobs.’
Under one compromise plan, the state pension could rise by 2.5 per cent in 2022, producing a much more modest increase of £3.37 a week.
A final decision will not be taken until the autumn.
Former pensions minister Sir Steve Webb, who was one of the architects of the triple lock, last night said suspension of the rules was justified in the current circumstances.
‘Crudely applying the triple lock at a time of historic volatility in earnings could lead to huge state pension increases when many of working age have lost their job,’ he said.
Steve Baker, a Tory member of the Commons Treasury select committee, said: ‘We can’t afford it. Obviously we need to look after pensioners but in the curenvironment a double lock on earnings and inflation would be far more affordable.
‘We are now looking at it running into three or four parliaments. We are looking at the public finances being in a genuinely catastrophic state.
‘We are all going to have to make very hard choices. In a deflationary environment, a fixed minimum on pensions increasing will produce anger in those not seeing those benefits.’
A spokesman for the Treasury said: ‘As with all aspects of policy, we will keep spending under review. Any decisions on future changes will be taken as part of the annual Budget process.’