Steven Cameron, Pensions Director at Aegon comments: “Today’s earnings figure* gives an indication of how much the government has saved by removing the earnings element of the state pension triple lock for next year. The pandemic has created huge distortions to the average earnings figures with a fall in earnings at the start of the pandemic followed by a very sharp increase as furlough ended.
“Had the triple lock remained untouched, state pensioners would have been granted an unrealistic increase of 8.3% next April**, costing the government around £7.5bn next year and every future year***. But Thérèse Coffey’s announcement last week to suspend the triple lock for a year, will now mean the state pension increases by price inflation or 2.5%, whichever is higher. It is expected inflation will trigger the increase, and if this figure is around 3%, the government will save the around £5bn moving to the ‘double lock’.
“Today’s state pensions are paid for by today’s workers through National Insurance contributions. Maintaining the triple lock unadjusted would have led to serious questions over intergenerational fairness, particularly in light of last week’s decision to increase NI by 1.25% to fund health and social care.”
References
*ONS, average earnings: https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/bulletins/averageweeklyearningsingreatbritain/september2021
** Under the triple lock, the state pension rises annually at the highest of earnings inflation (total pay for three months to July), price inflation (September CPI figure published in October) or 2.5% a year.
***The OBR suggest the triple lock costs the government around £0.9 billion for every 1 percent rise. OBR, Fiscal Risks Report: https://obr.uk/frr/fiscal-risks-report-july-2021/, 5.6, page 209.
|
