Average earnings between April 2020 and April 2021 rose by 8.4 per cent, fuelling concerns this could lead to “unaffordable” increases to the State Pension.
Under the triple lock the state pension rises by which ever is highest: average earnings, price inflation or 2.5 per cent. However there are concerns that the pandemic and furlough have had a “hugely distoring” effect on average earnings.
Aegon pensions director Steven Cameron says: “Today’s ONS figures show average earnings for the three months to April 2021 increased by 5.6 per cent, but looking at the year to April, total pay grew by a massive 8.4 per cent from 2020 to 2021. This is largely down to the hugely distorting impact the pandemic has had on earnings.
“April 2020 was the first month where the impact of lockdown and furlough came through into the figures, with many seeing their pay reduce to 80 per cent.
“The average earnings figures have been further affected over the last 12 months by lockdowns resulting in the loss of many lower paid jobs, meaning the average pay for those remaining in the workforce has increased. This means the increases in national average earnings figures don’t necessarily reflect the reality for many individuals’ pay and we can expect the distortions to continue for some time.
“Today’s figures will be sending an early warning to the Government for future decisions on the state pension increases under the ‘triple lock’.
“The earnings figure is based on average earnings increases for the year to July, so all eyes will be on whether the earnings figures in 3 months’ time show a similarly large increase. If so, the Government will have the difficult decision of whether to stick to the triple lock and grant state pensioners a particularly large increase at a time when many employees may simply be catching up on lost earnings, or break their manifesto commitment. This raises real intergenerational fairness issues as it’s those of working age who pay for state pensions through today’s NI contributions. One solution might be to average out the earnings increase figures over a 3 year period.”
