Chancellor Rishi Sunak looks set to smash a Conservative party pledge to pensioners that’s been in place for 10 years.
Ahead of the 2010 election, the Tories promised state pensions would rise every year by at least as much as average salaries – and they’ve repeated that promise ahead of every election since.
But there’s a problem this year.
During the coronavirus crisis, more than nine million people have been put on furlough – with the Government only covering 80% of their wages up to £2,500 a month – and millions more have had their earnings cut by bosses.
But it’s temporary – with wages expected to bounce back when the crisis is over provided the scheme has worked and people’s jobs have been saved.
That means, as things stand, state pensions are expected to rise by 18.3% next year – or £1,667.20 a year – even though they never fell.
More, this rise would then be baked in, meaning next year’s increase would be bigger too.
Tom Selby, senior analyst at AJ Bell, said: “The Government has two options open to it here: carry on with the state pension triple-lock and create a colossal chasm in the public finances, or revisit the policy and risk the wrath of millions of pensioners.”
But, with public finances stretched to the limit as things are, breaking that promise to pensioners might be the better move.
Aegon pensions director Steven Cameron said: “Blindly following that formula now as we move through and out of the coronavirus crisis with huge distortions to average earnings expected could create bizarre results which were never intended and which would fail any test of intergenerational fairness.”
Others were blunter in their assessment.
“Maintaining the triple lock in its current form is simply not an option,” said Jon Greer, head of retirement policy at Quilter.
However, that doesn’t mean there isn’t a way to preserve the intentions behind the pensions promise – that the state pensions shouldn’t become smaller compared to earnings over time – without offering Britain’s over-65s a huge boost as a result of the working population’s pay cut.
Options include a one year suspension, rather than a full removal, or using the average pay rises of the past few years rather than a single month’s figure.
“This will smooth any abnormal wage effects whilst protecting real incomes and saving the Government a considerable amount each year,” Greer said.