Triple lock pensions could take hit to save £600mState pensions may rise less than expected as ministers consider adjusting the “triple lock” to save more than £600 million.
Jeremy Hunt, the chancellor, is considering a tweak to the formula that would strip out bonus payments from the earnings figure used to calculate the state pension, which would reignite debate about the future of the triple lock policy.
While No 10 has insisted that the government is committed to the triple lock, Mel Stride, the work and pensions secretary, acknowledged that it was “not sustainable” in the long term because of spiralling costs.
The triple lock guarantees that the state pension, at present £203.85, will rise by the highest of inflation, earnings or 2.5 per cent. The Office for National Statistics revealed today that average weekly earnings rose by 8.5 per cent in three months to July, meaning pensioners had been in line for a rise of more than £17 a week.
However, the Treasury is said to be looking at using a lower figure of 7.8 per cent to trip out the effect of one-off bonuses given to more than a million NHS staff and civil servants over the summer.
One senior Treasury source said that excluding bonuses from the triple lock calculation was now under active consideration. “It is something that is naturally being looked at given the wider economic situation,” they said.“Officials are drawing up policy proposals for ministers, but at this point no final decision has been taken.”
After the ONS said that these bonuses had “affected” the headline 8.5 per cent rate, another Treasury source said that this had “distorted” the triple lock. “We have to look at it, the bonuses have distorted it,” they said.
The Institute for Fiscal Studies estimated that using the lower figure would save £630 million and cost many pensioners about £75 a year.
Stride did not deny that the measure was under consideration, saying there “clearly is a difference if you take into account the non-consolidated elements of pay in recent times, but these are all decisions that I have to take with the chancellor”.
He told BBC Radio 4’s World at One that he wanted to “get into the weeds” of the calculation, but insisted: “The overarching point about the triple lock is that we remain committed to it.”
However, after estimations that the triple lock could cost as much as £45 billion a year by 2050, Stride acknowledged: “We’ve known for a long time, that in the very, very long term, you’re absolutely right, it is not sustainable. But of course, what I’m dealing with is now and where we stand at the moment, is we remain committed to the triple lock.”
The state pension is poised to jump to above £220 per week from £203.85 next April, building on last year’s increase of more than 10 per cent, if the government commits to increasing it in line with earnings.
Fresh data released this morning showed that average weekly earnings, including bonuses, rose by 8.5 per cent in the three months to July, higher than expectations of 8.2 per cent. It is set to be the first time the state pension has risen in line with earnings in four years — it last did so in April 2020, when it jumped 3.9 per cent.
The earnings figures are the highest recorded in two years and have been pushed up by workers with high bargaining power being able to secure better pay and bonuses.
Treasury officials have suggested that the government may commit to uprating the lock in line with earnings growth excluding bonuses, to reduce the strain on the public finances ahead of Hunt’s autumn statement on 22 November. The decision to uprate pensions comes as the chancellor also faces tough choices on whether to abandon a longstanding policy to increase benefits in line with inflation.