Chris Noon, Partner, at Hymans Robertson says: “The triple-lock used to increase State pension is an important long-term protection for pensioners. Too many pensioners are still living on incomes that are below the pensioner poverty threshold despite years of the triple-lock being in place. The unusual circumstances of furlough means that the triple lock formula is not fit-for-purpose for the April 2022 State pension increase. This is short-term technical issue and we are pleased that the Government has not been persuaded to abandon the triple lock completely but has simply accommodated a one-year anomaly. The UK already has one of the worst State pensions across the OECD. Throwing out the triple-lock would have risked pushing more pensioners in to poverty.”
Andrew Tully, technical director at Canada Life: “The Government has been walking a difficult tight rope regarding the triple lock and appears to have finally landed on a decision to remove the earnings-linked guarantee, a move that our research shows only 16% of adults support. By opting for a temporary ‘double lock’ the state pension is now likely to increase by around 2.5%.
“The furlough effect on earnings means that without a change the state pension would have been set to grow by around 8% at a cost of billions of pounds in a time when public finances are increasingly stretched. It’s important to remember that each 1% rise in state pension costs the taxpayer around £850m a year.”
Tim Middleton, Director of Policy and External Affairs at the Pensions Management Institute commented: “There are many within the pensions industry who have argued that the triple lock would be impossible to sustain indefinitely, so perhaps today’s announcement should be regarded as an acceptance of the inevitable. Time will tell if the planned restoration of the earnings-related element will indeed actually happen. However, all those who remain passionate about pensions will remain committed to further development of our system to ensure that the retired are guaranteed a secure and comfortable lifestyle.”
Steven Cameron, Pensions Director at Aegon comments: “The pandemic has created huge distortions to National Average Earnings figures with a fall in earnings at the start of the pandemic followed by a very sharp increase as furlough ended. Sticking rigidly to the state pension triple lock formula would have granted state pensioners an unrealistic increase of around 8.8% at a time when earnings are still recovering from the pandemic. While many had called for some form of averaging of the earnings component, the Government has decided to remove the earnings figure for this year entirely, moving to a double lock based on the higher of price inflation or 2.5%. This is likely to produce an increase lower than a smoothed earnings figure. All eyes will now be on September’s all-important CPI figure, announced in October, to see what the increase in the state pension will be next April.
“But some adjustment was inevitable and only fair. Today’s state pensions are paid for by today’s workers through National Insurance contributions. Based on last month’s earnings data, a predicted 8.8% increase would have cost around £8bn next year and in every future year. Adding this burden to working age earners alongside the 1.25% increase to NI for the health and social care levy would have represented a double whammy hit to take-home pay.
“While the new deal on social care funding should eventually benefit us all, it is those above state pension age who are likely to benefit first, with younger generations picking up the initial cost. It would have severely stretched intergenerational fairness to also have granted such a major increase to state pensions, again paid for by today’s workers.”
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