The Government has announced it will scrap the triple lock pension increase mechanism that would have led to an 8 per cent increase in state pension next year due to wage volatility caused by the pandemic.
The widely-expected change, which will only remain in place for a year, marks the second manifesto breach in a day for the Conservative Government, following Prime Minister Boris Johnson’s earlier announcement of a 1.25 per cent rise in National Insurance and share dividend tax to pay for the NHS and a new social care system. The new NI rate is payable from 2022, breaching a ‘no tax rises’ pledge prior to the General Election. It will be rebranded as a ‘Health and Social Care Levy’ from 2023. People over state pension age will be required to pay the levy.
The tax hike will raise £36bn over three years for front line services, and will mean no-one starting care from October 2023 will be forced to spend more than £86,000 over their lifetime.
Labour MPs have attacked the social care funding strategy as protecting the inheritances of the wealthy while passing the cost of care onto working age people of all ages.
Institute for Fiscal Studies director Paul Johnson says the fact that both employers and employees will pay the increased rate of National Insurance meant the rise was actually 2.5 per cent, telling Radio 4 ‘this must be the biggest tax rising year in many decades’.
Canada Life technical director Andrew Tully says: “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 per xner of adults support. By opting for a temporary ‘double lock’ the state pension is now likely to increase by around 2.5 per cent.
“The furlough effect on earnings means that without a change the state pension would have been set to grow by around 8 per cent at a cost of billions of pounds in a time when public finances are increasingly stretched. It’s important to remember that each 1 per cent rise in state pension costs the taxpayer around £850m a year.”