Articles - Return of the State Pension Triple Lock

What a difference a year makes. This time last year, all the talk was about the Government abandoning one of its 2019 Manifesto promises and replacing the state pension ‘triple lock’ with a ‘double lock’, to determine by how much state pensions would rise in April 2022. Why? Because post-lockdown growth in average earnings stood at 8.3% for the three months ending July 2021, whilst inflation was only 2.0% for the year to July 2021 (Source: Office for National Statistics).

 By James Jones-Tinsley FPMI APFS Chartered Financial Planner, Self-Invested Technical Specialist at Barnett Waddingham

 Therefore, removing average earnings from the triple lock ‘formula’ and increasing state pensions (either in-line with inflation or by 2.5%, depending on which was higher) dealt with this seemingly anomalous ‘post-Covid spike’, whilst helping to cap costs and offer a fairer comparison to pay rises for workers.

 I wrote about this at the time, and you can read it here.

 Inflation increases
 Fast forward to July 2022.

 The Consumer Prices Index (CPI) – commonly used to measure inflation - reached a 40-year high of 9.4% for the year to June 2022 (Source: Office for National Statistics – 20 July 2022).

 The CPI figure that is used to determine state pension increases in April is the one announced for the previous September, and in September 2021 it stood at 3.1%.

 With the enviable benefit of hindsight, therefore, we can now make two observations:

 The CPI is now more than three times the rate by which state pensions increased in April.
 If state pensions had increased by reference to average earnings instead, their real value would be coping better with the significant price increases in food, petrol, and heating that the UK has experienced since last autumn.

 Whilst utilising a double lock last year, the Government were keen to stress that this was just a ‘one-off’, and that the triple lock would be restored for 2022-23.

 “What?” – I hear you ask – “even if CPI is higher now than average earnings were last year?”

 Proof potentially arrived with an answer to a Parliamentary Question to HM Treasury that was tabled in June 2022:

 “To ask the Chancellor of the Exchequer, whether he plans to introduce any additional measures aimed at helping pensioners to deal with inflationary pressures?”

 It was answered by Simon Clarke, Chief Secretary to the Treasury, who said: “Next year, the triple lock will apply for the state pension. Subject to the Secretary of State’s review, pensions and other benefits will be uprated by this September’s CPI which, on current forecasts, is likely to be significantly higher than the forecast inflation rate for 2023/24.”

 Indeed, the Bank of England said that it expected CPI to rise to slightly above 11 per cent in October 2022, and so the September CPI figure will be key.

 If the CPI figure for September is, say, 10% – that would imply an annual increase in April 2023 of over £960 for someone in receipt of the full flat-rate state pension, so meaning that it would break through the £10,000 per year barrier for the first time.

 From an ‘intergenerational fairness’ perspective, how would a 10% increase in the state pension be viewed by workers either on strike – or contemplating striking – in response to below-inflation pay awards, who are being told by the Government to apply “fiscal discipline” to their wage demands, to help suppress inflation?

 And then Boris Johnson resigned.

 Change in government
 As I write, Parliament is now in its summer recess, and the former Chancellor, Rishi Sunak, and the Foreign Secretary, Liz Truss, are each appealing to the Conservative Party membership to vote for them, to replace Boris both as Party Leader – and as Prime Minister.

 We will know who has won by 5 September. What we don’t know, however, is what happens after that.

 Given the size and demographic of the Conservative Party membership, there are demands that the victor should immediately call a General Election, to win a new mandate for themselves from the entire UK population – assuming, of course, that the Conservative Party actually win the General Election.

 Think back to Simon Clarke’s response to the Parliamentary question (my emphasis in bold): “…Subject to the Secretary of State’s review, pensions and other benefits will be uprated by this September’s CPI…”

 Whether a General Election is called or not, it will no doubt be tempting for the new incumbent at 10 Downing Street to ‘press the reset button’ - with the general state of the UK’s finances in mind.

 This will undoubtedly extend to pensions and benefits, as well as to wages, and the answer highlighted above arguably gives whoever is the Secretary of State at the Department for Work and Pensions adequate ‘wriggle room’ to decide, as part of their “review”, that the state pension will not increase by the September CPI figure.

 Despite written assurances to the contrary, the events of the past few weeks suggest that we cannot definitively say at the current time if the triple lock will return, or by how much the state pension will increase.  

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