True cost for pensioners if triple lock is ditched again

YOU don’t know what you’ve got until it’s gone, the saying goes, and this is certainly true of the state pension triple lock.the Government’s decision to suspend the mechanism has cost 12.6million pensioners up to almost £500 a year, but the long-term damage is even greater than that. Over the course of a 20-year retirement, the total loss will be closer to £10,000.

Pensioners will now be crossing their fingers and hoping the triple lock will be restored next year but in these cash-strapped times, no government spending commitment can be relied upon.

Scrapping the triple lock broke a Conservative Party manifesto pledge but has saved the Treasury around £4.7billion a year.the mechanism has its faults, but pensioners will pay a high price if it goes for good.

LOSING OUT

The triple lock pledged to increase the state pension either by earnings, inflation or 2.5 per cent a year, whichever is higher.

The Government scrapped the earnings element this year, as wages rebounded sharply from the pandemic, and will use September’s consumer price inflation figure instead. That was published on Wednesday and was lower than expected at 3.1 per cent.

Under the one-off temporary double lock, the new basic State Pension will now rise to £185.15 a week from April, up from today’s £179.60 a week. Those who reached state pension age before April 2016 will see their income increase from £137.60 to £141.85 a week.

It could have been so much better.

BUMPER RISE

If the Government had not scrapped the earnings element of triple lock, pensioners would be looking forward to a bumper pay rise of 8.3 per cent next year, based on wage growth in the three months to July 2021. Those on the new state pension would have been celebrating a pay rise of £14.90 a week right now, or £774.80 a year.

Instead, they will get just £5.55, which works out at £288.60 a year. Scrapping the triple lock has cost them £486.20 a year.

Those on the old basic state pension will get a rise of just £4.25 a week next year, instead of £11.42. This has cut their state pension increase from £593.84 to just £221 a year, a loss of almost £373.That is a lot of money in tough times.

DOUBLE TROUBLE

Andrew Tully, technical director at Canada Life, said these are the headline figures and many people will receive a smaller rise, because they did not make sufficient National Insurance contributions to qualify for the full basic state pension.

Tully said the UK state pension remains one of the least generous in thewestern world and warned the Government against making the double lock permanent: “This would risk a serious retirement rebellion from millions of voters.”

A rise of just 3.1 per cent points to tough times for pensioners with inflation likely to soar past 4 per cent. Kevin Brown, savings specialist at Scottish Friendly, said September’s inflation figure is “the calm before the winter storm” as rising fuel costs drive prices higher. Inflation is fastest in areas that hit the elderly hard, such as heating and food. “We now have the makings of a serious national cost of living crisis,” Brown added.

DANGEROUS PRECEDENT

Given the amount the Government will save by scaling back the triple lock, many suspect the cash-strapped Treasury may be tempted to tinker with it next year as well, as it scrambles to cut the deficit.

Raj Mody, global head of pensions at PWC, said the mechanism may prove too expensive as wages and inflation rise, while later-life campaigner Baroness Ros Altmann said the Government has set a “dangerous precedent”.

“Any Chancellor who does not like the current year’s uprating number, could find it easier to abandon pensioner protection in future,” she added.

There have been Treasury rumblings for years about the cost of the triple lock and replacing it with a double lock of just earnings or inflation, dropping the 2.5 per cent backstop. Ironically, it is the earnings link that proved unsustainable.

‘Inflation is the calm before the winter storm. We have the makings of a national cost of living crisis’

POLITICIANS’ WHIMS

Altmann said the earnings element of the triple lock is the most precious of the three, and suspending it is a major setback in the battle to level up and boost living standards. “Earnings uprating is vital and when it was dropped in the past, it led to rising pensioner poverty.”

Tom Selby, head of retirement policy at AJ Bell, said the decision to ditch the triple lock is another reminder that the state pension “remains uncertain and subject to the whims of politicians”.

The amount you receive and the age you receive it have changed. “To be sure of a comfortable and secure retirement, you have to save under your own steam,” Selby said.

That is sound advice but it is too late for those who have retired, and rely on the triple lock to make sure they can keep paying their bills as inflation threatens to go through the roof.

Now that it has been tinkered with it will be much easier to break again, and that’s a worry for millions.