Published On: Sun, Jun 21st, 2020

State pension triple lock under threat NEXT YEAR as Government faces ‘expensive’ bill | Personal Finance | Finance

The Government could end up ditching the triple lock guarantee on state pensions amid fears they could end up with a very “expensive” bill in 2021. The triple lock stipulates that pensions must rise by whichever is greater of the rate of inflation, average earnings or 2.5 percent. However, Which? Head of Money Gareth Shaw, told the “bounce back” could prove too much for the Treasury.

He said: “It seems the Government is anticipating that there is going to be a huge bounce back in income and an increase in earnings during the period where the state pension is up-rated

“There are three prongs for the triple lock: average earnings, a minimum increase of 2.5 percent and inflation, which currently is at 0.5 percent.

“The way the Government decides on what measures to use is usually measured in the September prior to the increase happening.

“So if inflation remains super low, the minimum the state pension will increase will be 2.5 percent.”

READ MORE: State pension: Coronavirus lockdown risks putting people in poverty

Mr Shaw continued: “Then if there is a real bounce back in earnings that could dwarf the 2.5 percent. It could be five percent or seven percent.

“That would be incredibly expensive for the Government to honour.

“That’s not this coming year, it will be next year when that bounce back of earnings happens. This year there’s going to be a dramatic decline.

“Earnings for the state pension are typically taken in July, which is the strange way that Government have worked it out.”

Mr Shaw told “How the Government decided to reduce the cost of the state pension remains to be seen.

“The triple lock seems obvious because it’s a relatively new mechanism introduced just under a decade ago.

“What it has done is lifted lots and lots of pensioners out of poverty, and got the state pension to a place where the payment is much more generous than it used to be.

“So the Government could say ‘we’ve done the job of it’.

“That said, they have a manifesto commitment not to scrap the triple lock.”

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