The UK government is being forced to take drastic action to deal with the economic fallout brought by the outbreak of covid-19 and subsequent lockdown.
Over the past few months, there have been rumours regarding chancellor Rishi Sunak looking to scrap the triple lock for pensions.
The move received significant backlash as many Brits deemed it “unacceptable”, since it was part of the Conservative party manifesto in the run up of the 2019 election.
But according to Quilter, there could be a way to keep the triple lock and ease its economic burden at the same time.
The UK state pension increases every year by either average earnings, inflation or 2.5%; whichever is highest.
This would see an increase of £532.20 a year by 2022-23 for ‘old-style’ state pensions, and £694.67 ($856, €761) for the more recent ones over the same period, the firm estimated.
But Quilter analysis shows that Sunak could implement a “temporary fix”, and maintain the triple lock, by “using a five-year rolling average for wage growth rather than using the year-on-year figure”.
This would see ‘old-style’ pensions increase by £374.88 a year by 2022-23, and the most recent ones by £489.23, saving the government and approximate £2.2bn over the period.
Current triple lock ‘untenable’
Jon Greer, head of retirement policy at Quilter, said: “The triple lock has worked well in reversing the relative decline in the state pension so that it has made up much of the ground it had lost relative to earnings during the 1980s and 1990s.
“However, once the furlough scheme ends later this year, and wages recover to their normal levels, the current triple lock will provide a considerable boost to the level of state pension at a time when many are out of work and the government struggles to control the deficit.
“This is untenable both in terms of its fiscal sustainability and intergenerational fairness.
“Despite a pledge to maintain the triple lock in the government’s election manifesto, this quirk in the system could mean the triple lock is high on the chancellor’s list of fiscal changes when he sets out the government’s post-covid recovery plans in the coming weeks.
“Maintaining the triple lock in its current form is simply not an option.
“The government should use this opportunity to carefully consider the merits of moving to a long-term solution, such as a smoothed earnings link, so that pensioners share in the proceeds of economic growth, whilst protecting their income against inflation and ensuring intergenerational fairness,” Greer added.