Government introduces technical Bill to allow state pensions to increase next April even though earnings have fallen
Steven Cameron, Pensions Director at Aegon comments: “State pensioners are on tenterhooks waiting to find out if the Government will continue to honour a Manifesto commitment to increase their state pension in line with the ‘triple lock’. This grants increases each April at the highest of earnings growth, price inflation or 2.5%.
“The Government is introducing a new technical Bill designed to cancel a technical detail in the small print which currently says if earnings growth is negative, state pensioners receive no increase, irrespective of price inflation, meaning the 2.5% ‘underpin’ also falls away. This obscure technical detail has escaped the notice of pensions experts and had the Government used this to justify no state pension increase next April, would have come as a shock to millions of state pensioners.
“While removing the legal barrier to granting an increase is welcome news, it may not be the final twist in the tail of the triple lock saga as it’s still to be seen if the Government will stick rigidly to this formula year on year. Doing so could see pensioners receive a 2.5% uplift next April and a much higher increase the following April if earnings growth rebounds after falling. This could come as many working age people might be struggling to regain pre COVID-19 earnings levels.
“The Government could decide to retain the spirit of the triple lock, but rather than the formula working year on year, it might smooth earnings fluctuations caused by furlough over 2 years, which would present a fairer approach across generations.”
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