The UK government is reportedly considering ending the so-called triple lock on pensions to offset the massive debt it has accumulated battling the economic fallout from the coronavirus pandemic.
UK newspaper the Daily Telegraph said an HM Treasury document, dated 5 May, estimated the country’s deficit could reach £337bn ($414bn, €382bn) this year because of the outbreak, compared to the £55bn in March’s budget.
It reported that measures including income tax hikes, a two-year public sector pay freeze and the end of the triple lock on pensions were all suggested in the document.
This comes after chancellor Rishi Sunak extended the UK government’s furlough scheme until October, which reportedly could cost an extra £70bn to fund.
The triple lock means the state pension increases by the highest of the increase in average earnings, inflation or 2.5%.
It makes a particularly big difference in periods of relatively low earnings growth and low inflation, which the UK has experienced over the last few years.
Pensioners would be worse off without the triple-lock, but by how much depends on what replaces it.
Life insurance giant Canada Life said some of the potential replacements for the triple lock are:
- A double lock, raising state pensions by the higher of earnings or inflation; and
- Increasing state pension by a single measure such as earnings or inflation.
Andrew Tully, technical director at Canada Life, said: “Recent above inflation increases to state pensions have been a very welcome boost for the many retirees who are looking to balance household budgets.
“However, there has been much debate over recent years about the long-term sustainability of the triple-lock. There is no doubt the commitment comes with a huge cost attached, and this is only going to increase as the number of over 65s in the UK increases.
“There is also a question of fairness, as the triple lock suggests pensioners’ income is growing faster than the rest of the population and spending on state pension has increased by more than other benefits.
“But we need to also recognise the UK state pension is not particularly generous compared to other nations.
“Any changes to the triple lock need to be well thought out and preferably have cross-party support so we have a sustainable long-term policy and people are clear how the state pension remains the bedrock of their retirement income.”
Since the 2011/12 tax year, the following benchmarks have been used for the annual uprating in line with the triple lock guarantee:
|2011-12||4.6% (Retail Price Index)|
|2012-13||5.2% (Consumer Price Index)|
|2013-14||2.5% (minimum uplift)|
|2015-16||2.5% (minimum uplift)|
|2017-18||2.5% (minimum uplift)|
Source: House of Commons briefing paper on state pension uprating