It was announced earlier this month that the State Pension ‘Triple Lock’ increase could have a much larger impact on the Treasury than had previously been forecasted.
At present, the State Pension increases each year by the highest of either average earnings, price inflation or 2.5%. Statistics released earlier this month by the Office of National Statistics (ONS) have shown that the annual growth in average total pay (including bonuses) has increased by 8.8% in the three months to June 2021, when compared to the previous year. This would result in a huge increase in the State Pension next year if this figure were to continue, as the increase would be nearly 9%, rather than nearer 3% if the other indicators were to be used.
There have been a number of differing suggestions given to the Prime Minister and Chancellor to combat this, such as, taking an average over the past 2 years for the average earnings figure (which in turn would take account of last year’s Covid figures) or even scrapping average earnings within the calculation completely for this year!
When looking at the current New State Pension of £179.60 per week, calculations have shown that, from next year, this would increase to c.£195 if this change were to happen, costing the Treasury c.£8bn in total and c.£5.7bn more than if the figure of 2.5% were to be used. This will likely cause huge debate among the 12 million people receiving the State Pension, unlikely to be happy if the amount they are due to receive is less than previously promised, based on the government’s manifesto and their continued support for the ‘Triple Lock’ moving forward.
On the other side of the argument, this will cost the Treasury much more than expected (c.£5.7bn) and the impact of this, when also considering the Covid-19 debt that the government will be looking to pay off over the next few years, could be considerable.
It is an interesting discussion point which as mentioned, will affect a great number of the UK population, and I am sure will be hotly debated with further detail likely to be provided within the next Budget, due March 2022.
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