State pension triple lock could be changed - how mechanism has been tweaked before

Pensioner looks at letter

The state pension triple lock could be 'tinkered' with, an expert has warned

PEXELS
Jessica Sheldon

By Jessica Sheldon


Published: 13/09/2023

- 08:31

Updated: 13/09/2023

- 15:15

The state pension rises by whichever is highest out of average earnings, inflation and 2.5 per cent under the triple lock guarantee

The triple lock could be tweaked to avoid a “bumper” state pension rise for the second year in a row, experts have warned.

While the Government has said it remains committed to the triple lock, Jeremy Hunt is considering slight tweaks to the rules to stop pensioners getting quite as much.


Changes like this to the mechanism have been seen before.

The triple lock was temporarily suspended for the 2022/23 tax year due to artificially inflated earnings data amid the coronavirus pandemic.

The state pension would have increased in April 2022 by 8.8 per cent in line with earnings, but instead, it increased in line with CPI, which was 3.1 per cent.

\u200bWork and Pensions Secretary Mel Stride in pictures outside Downing Street

Work and Pensions Secretary Mel Stride seemed to hint the 8.5 per cent figure may not be the earnings figure used in the state pension triple lock

PA

Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said previous tweaks to the policy could mean more “tinkering” is to come.

She said: “It has been tinkered with once before when the government opted to use a double lock mechanism when wages spiked in the aftermath of the pandemic.

“If it can be done once, the door was always left open to it being done again.

“The triple lock has played a role in supporting pensioner incomes and protecting them from miserly increases in their state pension, but the time is coming to assess whether it remains the best approach with a review into the state pension and the triple lock’s role within it.”

The ONS announced annual growth in employees’ average total pay, including bonuses, was 8.5 per cent in the three months to July 2023. This is the average earnings figure typically used for the triple lock, suggesting the state pension would rise by at least 8.5 per cent next year.

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The ONS said the total growth rate was affected by NHS and civil service one-off payments made in June and July this year.

Doubt was cast yesterday after Work and Pensions Secretary Mel Stride appeared to hint pensioners may not get an 8.5 per cent state pension rise that figures suggest.

Mr Stride told the BBC yesterday: “There clearly is a difference if you take into account the non-consolidated elements of pay in recent times, but these are all decisions that I have to take with the chancellor as part of a very clear process, a statutory process actually, that I go through in the autumn.

"So I didn't want to get into the weeds of exactly how I'm going to go about that.

"But the overarching point about the triple lock is that we remain committed to it.”

Ms Morrissey said: “Given the impact of one-off payments to NHS and Civil Service workers in swelling the figures, rumours are swirling that the government may opt to use a smaller number instead."

She pointed out that by stripping out the effect of bonuses, the increase could be at least 7.8 per cent, rather than 8.5 per cent.

“This still gives pensioners a healthy increase in their state pension, but brings further doubt around the future of the triple lock as the uprating measure for state pension long term.”

DWP logo outside Department for Work and Pensions building

The state pension triple lock was temporarily suspended in the 2022/23 tax year

PA

What is the state pension triple lock?

Introduced in 2011, the triple lock is a commitment that the state pension will rise each year by the highest out of average earnings, inflation and 2.5 per cent.

The inflation figure typically used in the state pension triple lock has not been published yet, but experts are predicting a further easing of inflation, which was 6.8 per cent in the year to July 2023.

It would mean, at 8.5 per cent, the earnings element in the state pension triple lock is the highest figure in the triple lock mechanism for the 2024/25 tax year.

Ms Morrissey said the figures look set to deliver a “bumper” pay rise to pensioners next year, warning it would “push the burgeoning state pension bill ever higher”.

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