Will the pensions triple lock be scrapped for good?
MPs backed the government regarding scrapping the triple lock, the mechanism used to calculate increases to the state pension each year.
The triple lock guarantees the basic state pension rises by whichever is highest out of average earnings, inflation or 2.5%. The government ditched the earnings element of triple lock this year due to earnings distortions created by the pandemic.
The House of Lords amendment to the Social Security (Up-Rating of Benefits) Bill sought to reinstate the triple lock for older people by allowing the government to alter the earnings-linked increase to account for the impact of the pandemic. The Lords argued that an alternative to July’s 8.3% earnings jump could be used. But MPs in the House of Commons voted 300 to 229 to scrap the triple lock this year.
The basic state pension is set to increase by £4.25 a week next year, from £137.60 per week to £141.85 per week, while the flat-rate state pension will rise by £5.55 a week, from £179.60 per week to £185.15 per week.
However, with inflation expected to hit 4% retirees’ spending power could drop over the next 12 months
Tom Selby, head of retirement policy at AJ Bell, said: “The decision to row back on a clear manifesto commitment that hits pensioners in the pocket will not have been taken lightly by the chancellor and the prime minister, so it is no surprise to see the government standing firm in the face of opposition from the House of Lords.
“The fact inflation is expected to run hot over the next 12 months has added fuel to the fire, with next year’s planned 3.1% rise in the state pension likely to feel like a real term cut if prices increase by 4% or more.
“The Lords want the government to retain the earnings element of the triple-lock but explore using an alternative measure that flattens the post-lockdown spike we have seen in 2021. Some have argued this could involve stripping out the impact of Covid on wages or using a smoothed earnings measure rather than the figure for the three months to July, when average earnings jumped by an eye-watering 8.3% as the UK economy opened up.
“However, pensions minister Guy Opperman said last night it would not be possible to produce a reliable alternative earnings measure.”
Becky O’Connor, head of pensions and savings at Interactive Investor, said: “It’s disappointing for pensioners that the Treasury could not find an alternative that would better protect pensioner incomes against inflation than the measure being used this year – September’s inflation rate of 3.1%, as this now looks to be on the low side given sharply rising energy, food and fuel bills. There is a real risk that some pensioners will struggle to stay warm and well fed this winter.
“But the longer-term threat is that the door is now open for the state pension triple lock to be scrapped for good. This is worrying. The government says it will reinstate the triple lock after a year – but a lot can happen in a year and the risk is that the government will renege on this promise.
“For future generations of workers, who might one day depend on the state pension for the bulk of their retirement income, the chipping away of the triple lock is concerning.”