Truss promises to keep triple lock for pensioners at cost of £21bn
‘Reform of the triple lock will be tempting for an incoming prime minister with cost savings to deliver’
LIZ TRUSS has vowed to uphold the state pension triple lock in a spending commitment that will cost taxpayers £21bn over three years.
The Tory leadership contender will honour the Conservative 2019 manifesto commitment as prime minister, sources have said.
Rival candidate and former chancellor Rishi Sunak suspended the pledge in a move that left pensioners with a 3.1pc pay rise while inflation rocketed to more than 9pc amid distortions from the furlough scheme which pulled average incomes down in 2020 before rebounding rapidly as staff returned to work.
The lock – a key Conservative Party policy – ensures that state pensions rise by the highest of inflation, wage growth or 2.5pc each year. The Government has said it will reinstate the policy in April.
The commitment to restore and protect the triple-lock in a period of high inflation will cost taxpayers an extra £21bn until the next general election, calculations by broker Interactive Investor show.
If inflation follows Bank of England forecasts, pensioners would receive pay rises of 10pc next year and 6pc the year after, before inflation settles back at 2pc in 2024. Next year’s triple-lock rise would cost taxpayers £865 per pensioner, Interactive Investor said. With 12.4m retirees in the UK, this would total around £10.7bn.
Helen Morrissey, of the investment service Hargreaves Lansdown, said that it was an expensive policy to pursue when inflation was so high.
She said: “The triple lock is controversial, but it was brought in to make sure that people on state pensions could get decent increases every year.
“We have an aging population who we have to take care of. But it is a tricky balancing act with younger people, who are also struggling with the cost of living crisis. We must watch the policy closely to make sure that it does not become intergenerationally unfair.”
It means state pension payments will rise by far more than the earnings of most of the workers whose taxes pay those pensions.
The latest figures from the Office for National Statistics show pay for the typical worker in the three months to May was up 6.2pc, with private sector incomes up 7.2pc and those in the public sector increasing by 1.2pc.
Only workers in financial services and construction are coming close to matching inflation, with bonuses in both industries helping typical incomes climb by more than 8pc.
Analysts at the National Institute of Economic and Social Research expect average earnings to rise by around 6.1pc over the year as a whole before falling to 4.7pc in 2023. If wage growth overtakes inflation, workers will not in turn see their incomes catch up with pensioners – instead, the state pension will rise in line with pay rather than prices, as that is another element of the triple lock.
Rebecca O’connor, of Interactive Investor, said that if the triple lock was scrapped, and an uprating of 2.5pc was agreed instead, then it would cost taxpayers just £2.7bn. She said: “Reform of the triple lock will be tempting for an incoming Prime Minister with cost savings to deliver, particularly based on the inflationary rises expected over the next couple of years.
“It’s a very fine balance – pensioners have suffered hardship this year through increases far below inflation and could feel justifiably that there is some making up to do.”
It comes on top of across the board support for bill payers this winter, with all households receiving £400 to help with the increased cost of energy from October when the price cap rises again. This has raised questions over whether the scheme should be more targeted to those on lower incomes.