The triple lock State Pension could potentially be radically changed in the upcoming months as the Treasury faces increasing financial pressure. The triple lock has set the state pension level for each of the last 10 years. But how does it actually work and could this system be under threat?
The Chancellor of the Exchequer Rishi Sunak is poised to remove the State Pension triple lock in the wake of the coronavirus pandemic.
In total, removing this triple lock system could save the UK about £4billion each year.
This may raise much-needed revenue but could force pensioners into financial hardship.
In April, the Social Market Foundation said a key element of the trip lock on State Pension could be scrapped to save £20billion.
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What is the triple lock?
The triple lock on the State Pension was introduced in 2011 by the coalition Government.
The triple lock acts as a guarantee for the basic State Pension ensuring it will rise by a minimum of either 2.5 percent, the rate of inflation or average earnings growth – whichever is largest of these.
Before 2011, State Pension rose in line with the retail prices index measure of inflation, which was consistently lower than annual risings in earnings or 2.5 percent.
What impact has the triple lock had on pensioners?
In a recent assessment, the Institute for Fiscal Studies (IFS) said: “Between April 2010 and April 2016 the value of the state pension has been increased by 22.2 percent, compared to growth in earnings of 7.6 percent and growth in prices of 12.3 percent over the same period.”
This equates to pensioners seeing their incomes rise by almost double the pace of the average worker.
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Why is the triple lock under threat?
The triple lock State Pension guarantee may come under threat as a result of the Government finding funds to pay the huge coronavirus bill, according to a former pensions minister.
With decreasing inflation and depressed wages, the working population is due to be the hardest hit during and in the wake of the coronavirus crisis.
According to experts, the Government may find it easier to ignore this safeguard for State Pensioner’s income.
In total, the Government is expected to have to deal with an expected £300billion bill from the pandemic.
The triple lock was intended to lift pensioners out of poverty and has gone some way to achieving that aim.
The SMF has argued “in the post-crisis world of slow, painful recovery, a triple lock ensuring a 2.5 percent minimum rise in pensions would constitute enormous generosity to pensioners, at a time when working-age adults face low or no wage growth and significant unemployment”.
The think tank argued the huge cost of the coronavirus crisis should be shared fairly across the UK population, between working people and retirees alike.
The SMF has instead proposed introducing a double lock system.
However, Foreign Secretary Dominic Raab told LBC the Government has no plans to remove the triple lock pension promise.
He told LBC: “We’ll keep all our manifesto commitments. We have no plans to touch the triple lock.
“Of course, I don’t want to pre-empt the Chancellor’s Budget.”
What is a double lock system?
The SMF has proposed an alternative to the triple lock system which would see the 2.5 percent minimum rise be removed from the guarantees.
Instead, the guarantee would only involve the two options: the rate of inflation and average earnings growth.
The State Pension continues to rise in line with either wage growth or the Consumer Prices Index (CPI), whichever is higher.
Experts have said, the effects of removing the triple lock might not be felt so much by the generation currently retired, but by those due to retire over the next 10 to 20 years.
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