State pension triple lock ‘will be broken’ says Halligan in June
Make the most of your money by signing up to our newsletter for FREE now
We use your sign-up to provide content in ways you’ve consented to and to improve our understanding of you. This may include adverts from us and 3rd parties based on our understanding. You can unsubscribe at any time. More info
The State Pension triple lock is a policy which was first introduced in 2011 by the then-coalition Government in an effort to protect pensions. The lock guarantees the state pension will rise by a minimum of either 2.5 percent, the rate of inflation or average earnings growth each year – whichever is the largest. However, due to the coronavirus, wages data has been warped this year, with growth in average total pay – including bonuses – recorded yesterday at 8.8 percent by the Office for National Statistics (ONS). Although inflation was announced today at two percent, it is expected to soar again, with the Bank of England predicting a rise to four percent later in the year.
This led to concerns about whether the Triple Lock was financially viable for the Government, particularly after a year of record spending.
Now, reports have emerged which suggest the Chancellor Rishi Sunak is on the way to scrapping the triple lock – watering down the policy in the coming year.
The Telegraph has reported the Prime Minister Boris Johnson has been advised by Cabinet ministers to make a temporary alteration to the policy.
Figures close to the Government told the newspaper an argument of “fairness” would be raised in order to justify the changes.
State pension triple lock set to be scrapped by Rishi Sunak – how will you be affected? (Image: Getty)
But there are particular worries about what a lower state pension increase will mean, particularly if it charts below inflation.
Inflation is the decline of purchasing power of money over time, and many pensioners are worried about their cost of living.
This morning, the Office for National Statistics (ONS) announced inflation had fallen to two percent in the year to July, but the Bank of England has predicted a four percent rise by the end of the year.
Commenting on what this means for retirees was Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, who said: “While the rate of inflation is widely predicted to peak then fall, it’s a stark reminder that its relentless creep upwards will take a real chunk out of the spending power of retirement income over time.
“Retirement can last twenty years or more, care needs to be taken that what is affordable early in retirement does not become unaffordable later.
“The best package for a sustainable retirement hardwires in a growing income, whether through inflation linked pensions or annuities, state pensions or investment portfolios, or a combination, with a healthy chunk of cash for emergencies on the side.”
Furlough alert: Britons ‘left in the lurch’ as scheme draws to close [ANALYSIS]
Inheritance warning as you could be ‘squandering’ your cash in savings [INSIGHT]
Early retirement: How you could leave the workforce sooner [EXPLAINED]
There is also, however, the matter of intergenerational fairness, which has often cropped up as it relates to the triple lock.
Some have suggested bumper increases to the state pension would be unfair following a year of financial hardship for many working people.
Indeed, it was an argument the Chancellor himself referenced in an interview with BBC Breakfast presenter, Charlie Stayt.
In July, Mr Sunak told the programme: “Concerns are legitimate and fair to raise.
“When we look at this at an appropriate time, your word is the right word: fairness. That will be absolutely driving what we do.
State Pension UK: What is State Pension? (Image: EXPRESS)
“We want to make sure the decisions we make are fair, both for pensioners and for taxpayers.”
However, the Government has consistently stated Triple Lock remains their policy.
It has stated decisions are to be made on the matter later in the year.
Pensioners, though, are understandably worried about a potential threat to the kind of increase they are expecting.
Experts have recently commented on the triple lock increase, with Ian Browne, pensions expert at Quilter, describing the issue as a “ticking time bomb”.
What is happening where you live? Find out by adding your postcode or visit InYourArea
He said: “The triple lock is a ticking time bomb for the Chancellor, and time is quickly running out for Sunak to make one of the most contentious spending decisions of a generation.
“Does he risk jeopardising the grey vote by tweaking or scrapping the lock to save a pretty penny, or does he hold fast on the lock and give pensioners a seismic boost to their income despite the controversial cost?
“Sunak will have to decide whether to cut the red wire or the blue wire, but so far he has just stalled.”
Indeed, Mr Browne referenced what may in fact later become policy, by positing “tweaking” the triple lock.
He added: “Instead the Chancellor could temporarily tweak the triple lock this year by moving to a three-year average figure for wage growth in order to smooth the temporary spike caused by the end of the furlough scheme.
“Using this amended earnings growth figure would increase the state pension by 3.9 percent next year, and would save the Government £4.5billion while maintaining a degree of intergenerational fairness.”