State pension triple lock could be changed ‘to deliver fair state pension increase’
The UK state pension increased by 10.1 per cent in April 2023
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Pensioners look set to get a second significant state pension boost next year, although there’s speculation the government will amend the triple lock mechanism.
The state pension is due to rise by 8.5 per cent, in line with the earnings figure published last month, from April, which would mean a £900 a year boost to people getting the full new state pension.
The earnings figure, which was the highest compared to inflation and 2.5 per cent, was higher-than-expected earnings figure, sparking speculation the government may opt to adjust the way in which the state pension increases next year.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, explained that the 8.5 per cent figure has been “swollen by the impact of one-off payments given to civil servants and NHS workers over the summer, so we may see the Government look to take a slightly different course”.
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Ms Morrisey suggested a different earnings figure - average wage rises excluding bonuses which stood at 7.8 per cent in data published last month – may be used instead.
She added: “If the government adopted this figure, it could make a saving on its state pension bill while also delivering what should be an inflation-beating increase for pensioners."
Jason Hollands, Managing Director of Bestinvest, suggested Chancellor Jeremy Hunt could decide to adjust the state pension formula, at least temporarily, to “deliver a fair state pension increase”.
Mr Hollands said: “There are doubts about the long-term sustainability of the triple lock, but backing away from it in the run up to a General Election would be a very high risk for all the parties.
“What we may see is a decision to adjust the formula, at least temporarily, so that the average earnings growth number used is for salaries-only but does not include bonuses.
"This would reduce the expected state pension increase baked in for next April from 8.5 per cent to 7.8 per cent, but still deliver a pension increase above where inflation is expected to be at that time.
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“The case for doing this is strengthened by the distorting impact on bonus figures arising from one-off public sector pay settlements in the NHS and civil service this summer which back-dated pay increases.
“There is some precedent here as the earnings growth element of the triple lock was previously suspended in 2021 due to the distortions caused by furloughed employees returning to work.”
Ms Morrissey agreed: “We have seen triple lock tinkering in the past, with the Government opting for a double lock option during the pandemic when wage data was seen to be unfairly inflated by furlough.
“In the face of a rapidly rising bill, there’s every chance Government could look to do so again."
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A DWP spokesperson recently said: “The Government is committed to the triple lock.
“As is the usual process, the Secretary of State will conduct his statutory annual review of benefits and state pensions in the autumn, using the most recent data available.”
The state pension triple lock, introduced in 2011, is a commitment to increase the state pension in line with the highest out of earnings, inflation and 2.5 per cent.
The inflation figure typically used for the mechanism was 6.7 per cent this year.
The state pension increased by 10.1 per cent, in line with inflation in April 2023.