“When the state pension triple lock was introduced in 2010, the aim was to stop inflation-linked increases paid to state pensioners lagging behind earnings growth of the working age population. The 2.5% underpin gave state pensioners a further guarantee of year on year increases to their standard of living and over the last 10 years, state pensions have increased by more than average earnings. This is an important means of offering fairness between generations and dignity in retirement to the UK’s elderly, particularly to those on the lowest incomes.
“The state pension formula which sets increases at the highest of price inflation, average earnings growth or 2.5% a year was set in a very different pre COVID-19 age when price and earnings growth tended to be relatively stable year on year. But blindly following that formula now as we move through and out of the coronavirus crisis with huge distortions to average earnings expected could create bizarre results which were never intended and which would fail any test of intergenerational fairness.
“If as a result of the furlough scheme we see a sharp dip in average earnings this year followed by a quick and full recovery the next, the triple lock would still grant pensioners a 2.5% minimum increase next year and potentially put them on track for a double digit increase in 2022, while those of working age might have simply regained their pre COVID-19 earnings.
“In these unprecedented times, we need to make sure we protect the principles of fairness and dignity in old age. Manifesto commitments aside, we can’t blindly follow a formula set in a different era. The Government needs to explore ways of offering state pensioners a fair deal, with longer term security, while removing the effect of average earnings distortions likely in the coming years.”
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