The “triple lock” formula that determines annual state pension increases in the UK will be suspended for one year, it was confirmed today.
Addressing the House of Commons today, work and pensions secretary Therese Coffey said the average earnings component would be set aside for the 2022-2023 financial year.
This means the state pension will increase by the consumer inflation rate or 2.5%, whichever is higher.
Speculation about the triple lock has been rife in recent weeks in light of a spike in average earnings data linked to the coronavirus pandemic.
The furlough effect on earnings meant that without a change the state pension would have been set to grow by around 8% “at a cost of billions of pounds in a time when public finances are increasingly stretched”, said Andrew Tully, technical director at Canada Life.
Steve Webb, partner at investment consultancy LCP and a former pensions minister, said it was understandable the government had decided to suspend the triple lock for one year only, and very welcome they had recommitted to the policy for future years.
“The UK state pension remains relatively low by international standards and many women in particular depend on the state pension for a large part of their income in retirement,” he said.
“To relax the rules on a one-off basis because of the distortions caused by the pandemic but to reinstate the policy for future years strikes the right balance.”
Chris Noon, partner at Hymans Robertson, said it was a “short-term technical issue” that the triple lock formula was not fit-for-purpose for the April 2022 state pension rise. He also expressed approval of the decision.
“The UK already has one of the worst state pensions across the OECD,” Noon said. “Throwing out the triple-lock would have risked pushing more pensioners in to poverty.”
At the Pensions Management Institute, Tim Middleton, director of policy and external affairs, appeared to question whether the suspension of the earnings link will be temporary.
“Time will tell if the planned restoration of the earnings-related element will indeed actually happen,” he said. “However, all those who remain passionate about pensions will remain committed to further development of our system to ensure that the retired are guaranteed a secure and comfortable lifestyle.”
Helen Morrissey, senior pension and retirement analyst at Hargreaves Lansdown, said: “The triple lock has played a role in boosting the incomes of pensioners over the past decade, but the current situation has exposed its flaws.
“While the suspension is only for a year, the time has come to look at whether the triple lock is fit for purpose and remains the best way to preserve the long-term value of the state pension.”