As widely anticipated in the face of rapidly rising earnings, the government has suspended its state pension triple lock guarantee.
The one-year suspension of the triple lock formula means the government will apply a less generous ‘double lock’.
In April 2022, state pension income will increase by 2.5% or Consumer Prices Index (CPI) inflation, whichever is higher.
Suppose the triple lock had remained in place. In that case, those receiving a state pension might have received an 8% uplift in their earnings due to a significant increase in average earnings following the pandemic.
Announcing the move, Work and Pensions Secretary Thérèse Coffey confirmed the government would disregard the average earnings element of the state pension triple lock for the 2022/23 financial year.
Coffey told the House of Commons:
“Tomorrow, I will introduce a Social Security Uprating and Benefits Bill for 2022-23 only.
“It will ensure the basic and new state pensions increase by 2.5% or in line with inflation, which is expected to be the higher figure this year, and as happened last year, it will again set aside the earnings element for 2022-23 before being restored for the remainder of this Parliament.”
According to Ms Coffey, the average earnings figures had been “skewed and distorted” by a “statistical anomaly” this year.
While a less generous formula than promised, state pension income will still rise in April 2022.
The government also pledged to restore the triple lock in the 2023/24 financial year.
It’s the second time in a day that the Conservative government has broken a promise made in their 2019 election manifesto.
They also announced a 1.25% increase in employer and employee National Insurance contributions, and a 1.25% increase in dividend income tax, to fund NHS and social care.
Steven Cameron, pensions director at insurer Aegon, said:
“The pandemic has created huge distortions to national average earnings figures with a fall in earnings at the start of the pandemic followed by a very sharp increase as furlough ended.
“Sticking rigidly to the state pension triple lock formula would have granted state pensioners an unrealistic increase of around 8.8% at a time when earnings are still recovering from the pandemic.
“While many had called for some form of averaging of the earnings component, the government has decided to remove the earnings figure for this year entirely, moving to a double lock based on the higher of price inflation or 2.5%.
“This is likely to produce an increase lower than a smoothed earnings figure. All eyes will now be on September’s all-important CPI figure, announced in October, to see what the increase in the state pension will be next April.”