Pensions experts are calling for the government to rethink plans for the triple lock, after the latest Office of National Statistics report shows annual earnings growth of around 4.8 per cent.
There are concerns that these figures have been distorted by “compositional effects”, which may have boosted the overall figure for earnings growth. This could impact on how state pensions are uprated in future.
The ONS report shows a further increase in annual pay growth, which for November 2020 to January 2021 reached 4.8 per cent.
However the ONS report points out that much of this growth is due to a fall in the number and proportion of lower-paid jobs compared with before the coronavirus pandemic, with bonuses deferred from earlier in the year also boosting the figure.
It estimates that if these ‘compositional effects’ are removed, underlying wage growth is around 3 per cent.
Aegon pensions director Steven Cameron says: “The headline figure for earnings growth is one of the 3 components of the state pension triple lock which grants state pensioners an increase of the highest of this, price inflation or 2.5 per cent.
“The earnings figure used is that for the year ending to July. The latest ONS analysis raises questions over whether it is right that state pensions might see a bumper increase as a direct result of many lower paid workers having lost their jobs during the pandemic.
“When the triple lock formula was set, we could never have imagined the pandemic we’ve been going through over the last year, or the huge impact it would have on health, wealth and the labour market. The state pension is a lifeline to many of those in retirement, and ongoing increases are essential. But it’s looking increasingly untenable to continue to blindly follow a formula which by its technical ‘composition’ is producing results that appear to fail a test of intergenerational fairness.”