The triple lock on the state pension could be dropped for the second year running after the new chancellor, Jeremy Hunt, refused to commit to increasing this benefit in line with inflation.
Tomorrow’s inflation figures should, in theory, dictate the state pension increase for 2024. But this has now been thrown into doubt by Hunt’s statement yesterday.
Most forecasters are expecting the CPI figure for September, published tomorrow, to be around 10 per cent. Under the terms of the triple lock the government is committed to raising the state pension by whatever is higher: September’s inflation figure, July’s average earnings growth figure or 2.5 per cent.
Last year the government abandoned the triple lock, as the earnings figure was artificially inflated due to effect of furlough during the pandemic. Prior to the current economic turmoil had said it would be reinstated this year.
There is now speculation that the government may do the reverse: indexing pensions by average earnings which stood at 5.5 per cent in July.
AJ Bell says if the government abandons the triple-lock for the second year running, and pensions are uprated in line with earnings this would save the HM Treasury an estimated £4bn to £5bn a year.
Its calculations show that if the basic state pension is increased by 10 per cent, the full flat rate state pension will increase from £185.15 to £203.65 a week from April next year. This would give an annual payment in excess of £10,000 for the first time.
In contrast an increase in line with earnings would result in a weekly pension of just £195.35 a week.
AJ Bell head of retirement Tom Selby says: “The state pension triple-lock has proved a hugely divisive policy, lauded by those who argue it provides much-needed protection to retirees and criticised by others who warn it exacerbates intergenerational unfairness.
“However, in the midst of a brutal cost-of-living crisis, one thing is absolutely clear – it is extremely valuable to those in receipt of the state pension.
“In turn, the costs associated with maintaining the triple-lock next year are likely to be eye-watering – which is undoubtedly the reason the UK’s latest Hunt is reluctant to commit to the policy.
“Once tomorrow’s inflation figure is published, the government will come under pressure to commit to the triple-lock or announce an alternative plan for uprating the state pension in April next year.”
He adds: “What we have here is a genuine tussle between politics and ensuring the public finances remain on a sustainable footing.
“Clearly no politician wants to head towards a general election having applied a real-terms cut to pensioners’ incomes, and you would think No.10 will be fighting hard against such a measure.
“If the triple-lock is canned for a second year in a row, it would be hugely controversial and only add to the political pressure being piled on this government.”