Latest figures show earnings growing at 8.8 percent, and if the triple lock was to rise in line with that, pensioners would get an extra £822 in 2022. However, if the Chancellor fiddles the rules to save cash, around 12 million pensioners could lose up to £10,000 over the course of their retirement.
Under the triple lock, introduced in 2010, the State Pension must rise in line with inflation, earnings growth or 2.5 percent, whichever is highest.
Last year, as wages and inflation plummeted during Covid lockdowns, pensioner incomes nonetheless rose a steady 2.5 percent.
Earnings are now rebounding quickly as lockdown restrictions ease and official figures published yesterday showed wages rising at 8.8 percent in the three months to June.
The new State Pension is worth a maximum £179.60 a week, and an 8.8 percent increase would add another £15.80 to that sum, or nearly £822 a year.
The actual increase will be based on the July earnings figure, published next month, but some say this could be even higher which would give pensioners yet more.
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Steven Cameron, pensions director at Aegon, said if the State Pension triple lock increase is based on July’s figures it could easily exceed 8 percent. “On current trends it could even top 10 percent.”
He said: “While inflation is on the rise, with the Bank of England predicting it could reach 4 percent later this year, a 10 percent increase in state pensions would represent a boost of 6 percent above inflation.”
Cameron said this will increase pressure on the Chancellor to find a way of reducing the earnings figure, which will otherwise cost the Treasury £7 billion, on top of its £301 billion Covid spend.
Tom Selby, head of retirement policy at AJ Bell, said one option is to use an underlying earnings figure that strips out pandemic wage distortions. “Underlying earnings grew at somewhere between 3.5 percent to 4.9 percent, giving pensioners a considerably lower increase.”
Selby said that using this could save the Treasury £3.5 billion.
By taking this approach the Government could “have its cake and eat it” when it comes to the triple-lock, Selby added. “It ticks the boxes of keeping a manifesto promise without heaping too much further strain on the public finances.”
That would be hugely unpopular among the nation’s pensioners. It would give them an extra £327 a year, but that is £495 less than implementing an increase of 8.8 percent. Over 20 years of retirement those who get the full new basic state pension could lose £9,900 in total.
Selby said the ultimate loss could be much greater because the Government may now consider scaling back the triple lock or abandoning it altogether. “While the Conservatives have committed to maintaining the triple-lock, its longer-term survival remains in doubt.”
Selby said by increasing the State Pension faster than earnings it will ultimately contain the seeds of its own demise by becoming unaffordable and and unfair on the young who pay for it from taxation.
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Selby said another option would be to accelerate increases to the State Pension age, so future generations retire even later.
Caroline Abrahams, charity director at Age UK, warned that any temporary change would risk becoming permanent. Given that the UK state pension is among the lowest in the developed world, there is a “copper-bottomed argument for keeping the triple lock now and far into the future”, she said.
The Bank of England predicts that inflation will hit 4% this year and Emma Watson, head of financial planning at Rathbone Investment Management, says this strengthens the arguments in favour of applying the triple lock. “It is only fair and necessary to protect the most vulnerable from rising prices,” she says.
Matt Amesbury, head of retirement planning at Purely Pensions, says any proposals to block the triple lock will face stiff opposition.
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