Sunak should 'step away' from pension triple lock says Gauke
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The State Pension triple lock guarantees an increase each year by the highest of three main components: inflation, average earnings or 2.5 percent. The policy, it has been suggested, could be under threat due to skewed wages data as more people get into employment – predicted to reach eight percent. Mr Sunak appeared to suggest the policy could be up for debate when he stated the outcome would be fair for “both pensioners and taxpayers” last week
And data released this morning appears to paint an even more challenging picture for the Chancellor.
Figures from the Office for National Statistics have shown in the three months to May, annual total pay growth reached 7.3 percent.
When comparing May 2021 to May 2020, the average earnings increase rise was recorded at 8.6 percent.
Even after accounting for inflation, total pay in the three months to May is up 5.6 percent, with regular pay up 4.9 percent.
This, then, leaves the Chancellor with a dilemma on his hands – increase the state pension by a bumper amount or scrap his party’s manifesto pledge.
While the Government has doubled down on its statement that the triple lock is set to stay, some experts wonder whether this is feasible.
Steven Cameron, Pensions Director at Aegon, commented on the matter.
He said: “Today’s further increase in earnings growth piles more pressure on the chancellor when considering the costs of maintaining the Government’s Manifesto commitment to the state pension triple lock.
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“The triple lock costs the government around £0.9 billion for every one percent rise, so Rishi Sunak may still be hoping for an easing in average earnings ahead of the all-important July figure, published in September, but time is running out.
“Without adjustments to the triple lock formula, the current trajectory of average earnings is expected to trigger a bumper rise to the state pension of potentially over eight percent at a cost of around £7 billion next year and in every future year.”
The indications by the Chancellor recently have led to concerns about the future of the policy.
Mr Sunak acknowledged in an interview with the BBC that “intergenerational fairness” was an important matter the Government would be considering.
But with costs soaring as a result of pandemic support, some have questioned whether there are too many factors to make the triple lock viable.
Sarah Coles, personal finance analyst at Hargreaves Lansdown, has warned “alarm bells” could be ringing for pensioners due to the data released today.
She said: “The figures lay bare the challenge that Rishi Sunak has to wrestle with.
“When you compare it to last year, pay inflation in the three months to May was a massive 7.3 percent, and in May the annual rise was 8.6 percent.
“If these kinds of wage hikes feed into the state pension triple lock, the government faces paying out billions of pounds more than planned.
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“The issue for the government is that if it sticks with the triple lock in its current form, a big rise in state pensions doesn’t just cost them more this year.
“This increase is locked in for good, so the extra cost stretches off into the far distance. The triple lock just can’t cope with sudden and spikey wage changes.
“Sunak has already suggested he may be rethinking the role of the triple lock in future, and these figures indicate that an element of smoothing applied to the wage figures could fit the bill.
“It would mean the spikes are evened out to a more gradual rise, so pensioners keep the incredible value of the triple lock, and the government doesn’t have to scrabble around to try to find billions of pounds in its Budget.”
The decision on the state pension triple lock is set to be announced later this year when the Government provides its regular update on the matter.
Pensioners will then get further clarity on the kind of increase they can expect to receive.
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