Pensions - Articles - Jump in pay puts state pension triple lock under pressure


Sarah Coles, personal finance analyst, Hargreaves Lansdown: “April’s jump in average pay is set to be the start of a run of bumper annual wage rise figures. These are due to feed into next year’s state pensions triple lock, which would give State Pensioners a huge pay rise at a time when the working population will likely be still clawing their way back from the economic effects of the crisis. At a time when the government is watching every penny, a double-digit rise in the state pension could call the triple lock itself into question.

 We’re likely to see some eye watering average pay rises in the coming months. We’re now comparing wages to the height of the crisis in 2020, when pay fell back for a number of months. As we go through this period, annual wage inflation is going to rise significantly.

 The state pension is due to rise with either inflation, wages or 2.5% - whichever is higher. If the government sticks with its formula for the triple lock, this will automatically feed through into state pension rises. A wild wage inflation figure would push pension rises through the roof.

 The government has the option of taking double-digit pension rises on the chin, making temporary changes to the formula to ease the pension rise next year, or tweaking the triple lock itself. The triple lock is the bedrock of people’s retirements, so any questions over its future are bound to raise the alarm. However, it’s also politically difficult for the government to touch it, so it will be wary of making major changes.

 One option would be to tweak the formula to account for smoothing of earnings. This allows the Government to maintain the triple lock, whilst simultaneously reducing its potency and any unanticipated consequences as a result.”

 The ONS average earnings bulletin was released this morning

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