Covid Impact on the Triple Lock
The state pension ‘triple lock’ will boost pensioner income by 2.5 per cent next April, after what looks set to be a grim winter dominated by Covid-19 and economic hardship.
The triple lock means annual state pension rises are decided by whatever is the highest of price inflation, average earnings growth or 2.5 per cent.
Confirmation today that September’s headline inflation rate was 0.5 per cent, while wages declined 1 per cent over the summer, means that third element will apply.
The Government has so far stuck to its popular state pension pledge to older voters.
However, as the working age population struggles with wage cuts and rising job losses it is likely to face mounting pressure to abandon the guarantee.
From April, pensioners are set to get an increase of £4.40 a week to £179.60 if they receive the full ‘new’ state pension introduced in 2016, or a rise of £3.40 a week to £137.65 if they are on the full ‘old’ basic rate.
That’s around £9,300 or £7,200 a year respectively.
Financial experts have already warned a big correction in pay levels after the Covid-19 crisis could mean a massive increase in the state pension in April 2022.
This could provoke even greater opposition to the triple lock if the nation hasn’t yet bounced back from the pandemic. Meanwhile, the outcome of Brexit remains an unknown until we see the shape of future trade deals with the EU and the US.
The Institute for Fiscal Studies points out that the latest increase means the basic state pension has risen 41 per cent over the past 11 years, compared to 25 per cent if it had been linked to inflation or 22 per cent to earnings growth.
It cites estimates putting the extra cost at £5.6billion if calculated up to the current year, plus a further £3.2billion if the policy remains unchanged by 2024–25.
Defenders of the triple lock insist it is a vital safeguard against pensioner poverty and that the state pension isn’t as generous as similar schemes in other countries.
And any move to axe it would cause a backlash among elderly voters, who paid contributions for their state pension throughout their working lives.