It may simply be an attempt to test the political water but the government is making it known serious consideration is being given to tinkering with the triple lock formula used to increase the state pension in April this year.
Introduced after the 2010 election by the Conservative-Liberal Democrat coalition, the triple lock ensures pensioners receive an annual increase of whichever is highest of average earnings, inflation or 2.5%.
The inflation element of the triple lock is determined by the annual rate for September, which will be released in October. At present, that looks likely to be about 7%.
Annual earnings are calculated over a different period – the three months from May to July – and include regular pay and bonuses. This year, however, the figure for total pay has been distorted by one-off payments to NHS staff and civil servants, which were paid in June and July.
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According to the Office for National Statistics, these exceptional payments led to an average annual increase in bonus payments of £1,400 to the public sector in the three months to July. They also pushed up the annual increase in earnings for the whole economy from 8.4% to 8.5%.
The ONS points out that the May to July earnings figures are provisional and may be revised next month. Even so, it looks certain pensions next April will be increased with earnings, not inflation.
Whitehall is now considering tweaking the earnings figure so that it is based either on regular pay – running at 7.8% – or on a measure of total pay not distorted by the NHS and civil service payments. That would reduce the size of next year’s pension increase by between 0.5 and 0.7 percentage points and would save the Treasury up to £1bn.
The full state pension is now £203.85 a week and it would go up to £221.18 were it were increased with earnings growth of 8.5%. Based on earnings growth of 7.8% it would rise to £219.75 a week.
There is a precedent. Earnings surged as businesses reopened after the Covid lockdown and the government temporarily suspended the triple lock. But in the context of total public spending well in excess of £1tn a year, the saving would be modest and the three ministers taking the final decision – the prime minister, Rishi Sunak, the chancellor Jeremy Hunt, and the work and pensions secretary, Mel Stride – may conclude that the wrath of pensioners, this close to an election, is not worth it.
