Rishi Sunak is back in newspaper headlines — he wants to talk about the post-pandemic economic recovery, but he’s been dodging questions about rumours of changes to the Pensions Triple Lock.
What is the Pensions Triple Lock?
The Triple Lock determines how much more pensioners on the state pension get each year (currently it’s £179.60 a week if you retired after 2016). The amount increases each year by either 1) inflation, 2) average earnings or 3) 2.5% — whichever of the 3 is greater. The idea is that pensioners aren’t left behind as the country’s economy grows and things get more expensive.
How has the pandemic affected the Triple Lock?
It’s down to how much money people are earning now. This time last year, lots of people were on reduced wages or had been furloughed, and a lot of the job cuts were in lower-paid jobs (i.e. hospitality). Now that more people are returning to work and earning more, and many of those who were unemployed have got new jobs, the average earnings figure has spiked.
In the first three months of 2021, wages increased by 5.1% and forecasts suggest that when the Triple Lock is calculated in July, the increase could be as high as 8%. The Triple Lock means that pensioners receiving the State Pension would also receive an 8% increase. While pensioners are likely to be very happy with an 8% increase, it won’t go down well when the government is slashing spending in other areas to meet the cost of the pandemic.
For example, NHS staff were only given a 1% pay increase and the backlog in NHS treatment is likely to take years to clear if the government doesn’t invest in the NHS. Hence the rumour that Rishi Sunak could be forced to abandon the Triple Lock.
Why would changing the Triple Lock be controversial?
It could be very politically damaging for the Conservatives to meddle with the Triple Lock. Only two years ago, it made a campaign pledge to leave it alone, so undoing that would affect its large cohort of retired near-retirement voters. According to YouGov, over two thirds of voters over 70 (and therefore receiving the State Pension) voted Conservative in the 2019 General Election.
However, going ahead with the Triple Lock increase of 8% would also cause an uproar for those on Universal Credit, which will have the temporary uplift of £20 a week removed this Autumn. The number of people on Universal Credit soared during the pandemic as many lost their jobs. To put this into perspective, the number of households receiving Universal Credit in November 2020 was 4.9 million, up 2.2 million from March 2020.
Universal Credit is also much lower benefit than the State Pension. With the uplift it’s currently £344 a month for a single claimant under 25 (£411.51 a month if over 25), while someone who retired after 2016 receives £775.66 a month. The dichotomy between the two is significant – why is that working age people are expected to live on £355, but older people need twice as much?
Cutting Universal credit while increasing the State Pension would have a far-reaching effect for the recovery of future generations and many – including prominent Conservatives – have called for the proposed cut to the Universal Credit uplift this Autumn to be canned for good.
Changing the triple lock pledge would mean going back on a key campaign pledge and the loss of voter confidence. Opposition parties would also have a field day reminding the country how the tories had gone back on their pledges.
As the old saying goes, ‘there’s no smoke without fire’. The Chancellor should have quashed these Triple lock rumours, but so far, he hasn’t, which suggests something is a foot. Watch this space.
More pension reading
If you don’t know how pensions work, check out our Dude, Where’s my pension? series. If you’re over 50 you might want to speak with Pension Wise (a free service) to help understand your current pension, the state pension and what options are available to you as you approach retirement.