Amid concerns over the state of the public finances, UK ministers may alter the “triple-lock” rule to increase state pensions by less than a 8.5 percent rise in earnings.
Officials have said that the government is looking at adjusting the guarantee. The guarantee has been in effect since 2010, and states that pensions are to increase annually by the highest of either earnings growth, inflationary consumer prices or 2.5%.
The future of triple locks is one of British Politics’s most sensitive issues. But Prime Minister Rishi sunak refused to confirm at the weekend if a promise to maintain it would be in the Conservative Party manifesto for next elections.
Office for National Statistics figures on Tuesday showed an annual increase of 8.5% in the average weekly wage, the figure that is normally used to determine the earnings component of the triple lock between May and January.
Officials now suggest that the government may choose to remove bonuses given to NHS workers and civil service employees in June, to settle pay disputes, from its pension calculations.
The increase in pensions will be closer to that reported by the ONS on Tuesday, which was a 7.8% increase in regular salary, excluding bonuses.
Triple lock would still use the lower earnings figure, as it is higher than the consumer price inflation rate of 6.8% in July and the 2.5% figure for this month.
The Treasury, however, is still preparing for a much larger increase in the state pensions that it had originally planned when the Budget was presented in March.
There have been no decisions made yet, but if Mel Stride (work and pensions secretary) goes ahead, the new state pension will be set at £219.80 per week next April, rather than £221.20.
The maximum rate is £203.85 per week for the 2023-24 current year.
Government insiders claim that the change would not affect the “triple-lock” guarantee because the secretary of work and pensions has the power to define “earnings”.
The government added that there would be no special legislation required this fall, unlike the move made in 2021 when the “triple-lock” was suspended after huge distortions of earnings due to pandemics.
Ministers and officials claim that the change in the lock for this year is justified, as the headline measure does not provide the best indication of true earnings growth.
On Tuesday, the ONS stated that “one-off” payments in June and August had “affected” the metric.
The government could save hundreds of millions a year if it decided to increase state pensions through “regular pay growth”.
Officials claim that the triple lock would save them money each year. The effect is ratcheting, meaning it increases in every year and then gets compounded with future increases.
The DWP planned to spend £134bn on the state pension in 2024-25, but will need to spend more in 2019 because the earnings growth is higher than what the OBR predicted in March.
The £134bn was calculated based on the assumption that the government will increase the state pensions by 6.2%. An increase of 7.8% would still add over £2bn in costs next year.