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The pension triple lock – Could it be about to change?

For years the Government has stood by its commitment to retain the triple lock on the state pension, which ensures that payments increase annually by either 2.5 per cent, the rate of inflation or the level of earnings recorded in the July employment figures – whichever is the highest.

However, the Government now faces a difficult decision following a surge in average earnings, which under the triple lock would see pension payments rise by more than eight per cent next year.

The increase in earnings is an anomaly, not driven by the generosity of employers, but rather due to the fact that a large part of the UK workforce was on reduced wages in 2020 due to furlough.

Nevertheless, under the Conservative Party’s manifesto, the Government should still increase payments by this significant amount, which could cost the Treasury an additional £4 billion.

Chancellor Rishi Sunak, who is already having to try and recover the public purse having spent more than £372 billion supporting the nation during COVID-19, is understood to have called for temporary measures that allow the Government to renege on its promise.

Now a spokesperson for Boris Johnson has said that Downing Street is considering its action given the rise in earning. The spokesperson said: “I think we recognise the legitimate concerns about potentially artificially inflated earnings impacting the uprating of pensions.

“Any decision on future changes to the triple lock will be taken at the appropriate time based on the latest data, and of course we will continue to support older people while ensuring future decisions are fair with pensioners and taxpayers. No decisions have been made.”

It would seem that the Chancellor’s call for fiscal discipline is being taken seriously as the Government seeks to find a solution that is fair to taxpayers and pensioners.

According to sources in Whitehall, Rishi Sunak is believed to be weighing up solutions to the difficulties created by the triple lock.

Under one of the solutions, earnings would be averaged over the last two years instead of one. This would mean that the current rise in average earnings would be balanced out by zero earnings growth in 2020.

Alternatively, the Government could temporarily revert to the previous double lock pension system in which this year’s state pension would increase by 2.5 per cent or the September inflation rate, whichever is higher.