It suggests, however that in the wake of Covid-19 and the expected disruption to earnings from people being furloughed, it would be sensible to suspend the earnings element temporarily over 2021/22.
Explaining the need to keep the triple lock, Chris Noon, Partner, says: “The triple lock was put in place in 2010 because of the relatively low level of pensioner income. It was essentially a mechanism for increasing State pension relative to earnings and the cost of living over the medium-term. Over the last 10 years the triple lock has helped increase State from around 20 per cent of national average earnings in 2010 to around 22.5 per cent of national average earnings in 2020.
It’s difficult to see how this 2.5 per cent change has substantially shifted the position of pensioner poverty when the threshold for this is 60 percent of median household income1. Whilst it makes sense for the Government to consider how it responds to the short-term implications of furloughing for State pension increases in 2021 and 2022, it would be madness for them to throw out the triple-lock without a more detailed assessment of current pensioner poverty in the UK.
“The UK pensioner poverty position must be assessed properly by the Government before making knee-jerk policy decisions to short-term cost savings opportunities. It is clear that earnings reductions because of furloughing will give rise to a technical issue on average earnings increases in 2021 and 2022. This could impact the triple lock both increasing negatively in 2021 and positively in 2022. Temporarily addressing this anomaly would be sensible but it shouldn’t be used an excuse for throwing out the triple lock.”
Hymans Robertson’s analysis shows that since the triple lock was introduced the State pension is:
o £10.10 pw higher than it would have been had it just been linked to the cost of living; and
o £11.85 pw higher than it would have been had it just been linked to earnings increases.
Arguing for the need for a long-term view, Chris continues: “We would urge the Treasury to see the furloughing situation simply as an anomaly rather than using it as an excuse to renege on a manifesto promise to maintain the triple lock. Relative to national average earning, the triple lock has increased State pension modestly over the last 10 years. Removing it now would be short-sighted from a pension policy perspective.”
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