State pension triple lock may now survive as falling inflation makes it ‘more affordable’
The triple lock was introduced in 2010 and is hugely popular among state pensioners as it has helped lift millions out of poverty.
While the state pension is still not enough to live a comfortable lifestyle in retirement, it would have been even lower without triple lock protection.
Each year, it increases the state pension by either earnings, inflation or 2.5 percent, whichever is highest.
Yet many in HM Treasury would like to see the back of it, arguing that it will prove unaffordable as the population ages.
The triple lock’s enemies have jumped on the volatility of the last three years to push the case for it to be axed.
State pensioners should have received an increase of 8.3 per cent in the current tax year, as wages rebounded sharply from the pandemic.
However, the DWP decided this was figure was distorted and suspended that part of the mechanism. So pensioners got an increase of just 3.1 percent extra from last April.
This triggered widespread fury and left many pensioners facing a stark choice between heating or eating, as inflation rocketed to a high of 11.1 percent last October.
Suspending the triple lock show for a single year showed pensioners just how tough life would be if it was axed altogether.
Happily, it has been reinstated and pensioners can now look forward to a record-breaking pay rise of 10.1 percent from next month as a result.
Despite that, the triple lock’s long-term outlook remains uncertain, as that double-digit increase will cost the Treasury almost £10billion a year.
But now a new piece of information could make its future a bit more secure.
In his Spring Budget on Wednesday, Chancellor Jeremy Hunt delivered a piece of news that the nation has been waiting to hear.
Quoting the Office for Budget Responsibility, he predicted that “inflation in the UK will fall from 10.7 percent in the final quarter of last year to 2.9 percent by the end of 2023”.
Pension experts immediately realised that if OBR forecasts are correct and inflation does fall, this has positive implications for the triple lock.
Steven Cameron, pensions director at Aegon, made it clear saying: “Hunt’s inflation predictions may make retaining triple lock for a further year more affordable”.
He noted that the triple lock inflation figure is based on September’s number, which is likely to be a lot lower than January’s 10.1 percent, the latest we have.
Although inflation may not have fallen to 2.9 percent by September, it should still be a lot lower than it is today.
Cameron said a lower inflation figure reduces the likelihood of the formula producing another controversial state pension double-digit increase. “This may make it easier for the Government to retain the triple lock for another year.”
He wasn’t the only pensions expert to draw this conclusion. Dean Butler, managing director for customer at Standard Life, said thanks to falling inflation “the debate about the triple lock’s future is likely to be less contentious this autumn, which is when the 2024-2025 state pension increase will be announced”.
READ MORE: Hunt warned of ‘uproar’ from millions if he betrays triple lock pledge
Inflation isn’t the only variable that counts when calculating the triple lock. Next year’s state pension will be increased by earnings instead, if they are higher.
Wages grew by 5.5 percent in the year to September 2022, and this figure would have been used for the triple lock if inflation hadn’t been higher.
The latest earnings figure we have, for the three months to January 2023, show average weekly earnings grew by 5.7 percent.
Cameron reckons earnings growth could remain high throughout 2023, due to inflation and labour shortages.
If he’s right then earnings could be higher than inflation in September. In that case, state pensioners could get an inflation-busting increase from April 2024, assuing the triple lock survives.
That would be the best of both worlds, so long as wages don’t growth so fast that they trigger another triple lock suspension.
That seems highly unlikely, though, with a potential general election next spring, and by January 2025 at the latest.
Prime Minister Rishi Sunak will not want to go to the polls having just infuriated 12 million pensioners.
There are good reasons why the state triple pension lock may prove more sustainable than some fear.