By James Jones-Tinsley, Self-Invested Technical Specialist at Barnett Waddingham
"From next April, the triple lock will be temporarily replaced with a ‘double lock’ of the highest of either inflation, or 2.5%"
The average earnings component will be excluded meaning that, from next April, the triple lock will be temporarily replaced with a ‘double lock’ of the highest of either inflation, or 2.5%.
Why the suspension?
According to data from the Office for National Statistics (ONS) released on 14 September, the growth in average total pay (including bonuses) was 8.3 per cent for the three months ending July 2021.
Why the significant increase in pay?
Ms Coffey put this down to the large volume of workers coming off the furlough scheme at the same time as the country is emerging out of the pandemic lockdown. These factors have served to inflate the average earnings statistics, far beyond what they would be normally.
According to Ms Coffey, a one-year adjustment to the triple lock is necessary, therefore, to stop pensioners "unfairly benefiting from a statistical anomaly," and that the policy would be reinstated in the following year.
Is the triple lock suspension intergenerationally fair?
If pensioners were in line for an 8.3 per cent increase from April 2022, those qualifying for a full ‘New State Pension’ would see it increase from £179.60 per week to £194.50.
By comparison, those pensioners receiving the full ‘Basic State Pension’ would see their payment increase from £137.60 per week to £149.00.
By suspending the wages element of the triple lock, however, one could argue that the government has remained fair to both pensioners and taxpayers.
The phrase ‘intergenerational fairness’ is increasingly utilised by politicians to justify a particular decision.
"Given that many of the working population saw their income fall during the Covid-19 pandemic, a large increase in pensioner incomes next year is unlikely to be popular"
It is particularly apposite in any discussion surrounding the triple lock suspension, when many workers – particularly those in the public sector – are facing no increases in their salaries from April next year.
Given that many of the working population saw their income fall during the Covid-19 pandemic, a large increase in pensioner incomes next year is unlikely to be popular.
Writing before the suspension announcement, Sir Steve Webb, who was UK pensions minister from 2010 to 2015, stated: “The triple lock has done an important job for over a decade in rebuilding the value of the state pension and … there is still more to be done, as the UK state pension remains one of the lowest in Europe.
"But slavishly following a formula designed for a very different time may not make sense in these extraordinary times and most people would understand the Chancellor taking a more flexible approach for one year only.”
In addition, a significant increase in the state pension would have been difficult for the government to justify, particularly as a 1.25 per cent increase in National Insurance Contributions – purportedly to pay for social care reform - was announced on the same day as the suspension.
(If I was being cynical, I would suggest that this was done on purpose, in order to move the suspension further down the news agenda on that day).
Will the triple lock suspension be temporary?
Media discussions of intergenerational fairness, where state pensions are concerned, too often assume that every pensioner is receiving the full New State Pension (first introduced in April 2016) and enjoy a lavish, work-free lifestyle of hobbies, eating-out and travel.
"There are concerns that the suspension could be a first step towards reforming or dismantling the triple lock altogether"
The reality is quite different. Age UK charity director Caroline Abrahams, stated there was “a strong case” for not suspending the triple lock, as more than two million pensioners – typically elderly widows - are currently living in poverty.
There are also concerns that the suspension could be a first step towards reforming or dismantling the triple lock altogether, meaning that both younger and older people will be negatively affected over time.
However, on a day when two Conservative manifesto promises were simultaneously broken, Ms Coffey was at pains to assure MPs that next year’s suspension would be nothing more than a temporary adjustment:
"It will ensure the basic and new state pensions increase by 2.5% or in line with inflation, which is expected to be the higher figure this year, and will…set aside the earnings element for 2022-23 before being restored for the remainder of this Parliament."
Time will tell if such reassurance holds true. Whether it does or not, future intergenerational discussions of fairness, where comparisons of increases in wages and pensions are concerned, must be both realistic and balanced.
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