The Government is being urged to “bring clarity” soon on the future of the state pension triple lock.
Reports suggest that a decision on the triple lock, which is used to uprate pensions, is set to be made imminently and an announcement could be just days away.
Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown said: “Any decision needs to take account of the needs of both pensioners and taxpayers.
We need to look at whether the triple lock remains the best way to maintain the long-term value of the state pension while striking a balance between taxpayers and pensioners
Helen Morrissey, Hargreaves Lansdown
“An early decision would be welcomed as bringing clarity for everyone.
“The current situation, though extreme, shows the importance of reviewing the triple lock.
“It has improved the incomes of pensioners, but we need to look at whether the triple lock remains the best way to maintain the long-term value of the state pension while striking a balance between taxpayers and pensioners.”
The measure guarantees that the state pension will increase in line with inflation, earnings or 2.5%, whichever is higher.
But distortions to wages caused by the coronavirus crisis could mean an extra £3 billion pensions bill.
The Office for Budget Responsibility (OBR) said in July that pensioners could see their payments rise by as much as 8% from April 2022 due to the guarantee.
Final decisions on the uprating policy for pensions and welfare benefits are taken by the secretary of state for work and pensions, supported by the Treasury, through an annual uprating review.
There is speculation that the earnings part of the guarantee could be temporarily removed to instead create a “double lock”.
Another potential option could be to smooth out the impacts of the furlough scheme and the loss of some lower-paid roles during the coronavirus crisis on the wage growth figure used in the calculation.
Sir Steve Webb a former pensions minister who is now a partner at consultants LCP (Lane Clark & Peacock) said: “In a normal year the state pension rate for the following April would not be announced until November.
“But there would be much to be said in the Government pre-empting months of speculation by making clear its intentions now.
“Whilst it seems generally accepted that this year’s earnings figures are distorted by the pandemic, a key element of any announcement will be whether the Government remains committed to the triple lock thereafter.
“Modifying the numbers for one year would be much easier to justify than the permanent abolition of a policy which was in the Conservative manifesto less than two years ago.”
A Government spokesman said on Friday: “We will continue to support retired people while ensuring future decisions are fair for both pensioners and taxpayers.”
The full basic state pension in 2021/22 is over £2,050 a year higher in cash terms than in 2010, an increase of more than a third.
Since the triple lock was brought in, the state pension has increased by 35%, while average earnings have increased by 27%.