State pension triple lock: Could the pandemic mean a bumper rise?
Sponsored feature | David Foster, financial planner, Gibbs Denley Financial Services
The triple lock guarantees that the state pension will rise each tax year, to help preserve the spending power of pensioners as inflation means the cost of living rises.
The state pension will rise by the greatest of these three measures:
- Average earnings growth
- Inflation, as measured by the Consumer Price Index
- 2.5 per cent.
This year, the government could face a far larger bill to maintain its triple lock pledge as during the pandemic, average earnings were reduced as many people were out of work, or furloughed. With millions of people returning to work, take-home pay has increased significantly and skewed official data. According to the Office for National Statistics (ONS), April 2021’s average earnings grew by 8.4 per cent compared to April 2020.
As a result, pensioners could be on course to receive a record increase to their pension for the 2022/23 tax year. The Daily Telegraph estimates it could cost the government £7billion to meet its triple lock commitment if the state pension rises 8.4 per cent, around £5billion more than the minimum 2.5 per cent increase would cost.
For pensioners receiving the full state pension, an 8.4 per cent increase would mean their annual income increases by £784.16.
While the government has reaffirmed its commitment to the triple lock, some MPs are calling for the way the rise is calculated to be amended for one year.
They state that the ONS figures are distorted, as in reality many workers have faced pays cuts and job insecurity over the last year. Speaking to the Telegraph, Nigel Mills, chairman of the all-party parliamentary group on pensions, said: “The triple lock wasn’t meant to be based on artificially out of line earnings data.”
Instead, he proposes calculating a two-year average earnings figure to smooth out the ‘artificial spikes’. A final verdict isn’t expected to be made until November.
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This article is for information only, and does not constitute financial advice.