UK government weighs change to ‘triple lock’ to limit pension increase

UK government weighs change to ‘triple lock’ to limit pension increase

Get updates on the UK economy for free

Each morning, you'll receive a myFT Daily Digest email that will summarize the most recent news about the economy in the UK and send it to you.

Government officials in the United Kingdom are considering modifying the "triple lock" regulation and potentially raising state pensions in the coming year. However, the increase may be less than the current proposed 8.5% hike in earnings to address ongoing concerns over the nation's financial wellbeing.

Government representatives revealed that they are currently considering altering the established guarantee that has been operative since 2010. The guarantee states that pensions will increase on a yearly basis, corresponding to the highest of three factors: growth of income, inflation rate, or a fixed rate of 2.5%.

The continuity of the triple lock in the coming years is a very touchy subject in politics in the UK, however, Prime Minister Rishi Sunak refrained from declaring if a promise to maintain it will be incorporated into the Conservative party's manifesto for the upcoming election, over the weekend.

The Office for National Statistics recently released data indicating a significant rise in average weekly pay. This figure is typically utilized to determine the earnings component of the triple lock. The data shows a growth rate of 8.5% year-over-year from May to January.

Officials are now proposing that the government may opt to deduct incentives given to NHS staff and public sector employees in June when solving remuneration disagreements from their pension estimations.

Consequently, pensions would experience a growth that is more in line with the 7.8% hike in typical salary, which was disclosed in the ONS report published on Tuesday, but does not include bonuses.

The important factor for the triple lock would be the lower earnings amount, as it exceeds both the 2.5% mark and the recent consumer price inflation rate for July, which was 6.8%.

Yet, the Treasury is still prepared for a much bigger surge in state pensions than what was initially anticipated back in March during the Budget.

There aren't any choices made for now, but in case Mel Stride, who is the secretary of work and pensions, makes a decision, it could lead to the upcoming state pension being limited to a highest amount of £219.80 per week in April, instead of the previous £221.20.

The highest amount that can be received for the 2023-24 period is £203.85 per week.

According to insiders within the government, the "triple lock" guarantee would not be technically violated due to the work and pensions secretary having the ability to interpret the definition of "earnings".

They also mentioned that there wouldn't be any need for unique laws this fall. This differs from the previous year when there was a proposal to halt the "triple lock" due to considerable alterations in the earnings data caused by the pandemic.

Government ministers and officials claim that modifying the lock policy this year is reasonable because the main indicator is not a comprehensive representation of real income progression.

On Tuesday, the ONS mentioned that the metric was impacted by irregular payments in June and July.

If the administration opted to increase state pensions according to the "typical" rate of pay escalation, it could conserve hundreds of millions of pounds annually.

Authorities argue that this measure will result in yearly savings because of the triple lock's incremental impact, which gets more significant each year, combined with potential future hikes.

The Department for Work and Pensions initially estimated that the state pension would amount to £134 billion by 2024-25. However, due to a higher-than-anticipated increase in earnings growth as compared to the OBR's projections in March, the DWP will need to allocate even more funds next year.

It was predicted that the cost of state pensions would increase by £134 billion if the government decided to raise them by 6.2%. Even if the increase was 7.8%, it would still lead to an additional cost of over £2 billion in the upcoming year.

Read more
Similar news
This week's most popular news