The Government risks raising the ire of older voters just before the election if it fails to increase the state pension by 8.5 per cent next April.
The financial cost could be enormous, but so could the political damage of breaking – or finding some way around – the popular promise of the “triple lock.”
This promise means the state pension should rise each year at the highest level of inflation, average earnings growth or 2.5 per cent.
Feelings are running high in responses to our state pension triple lock story today, which confirmed that recent pay growth, including bonuses, was 8.5 per cent and should therefore determine the next increase this spring.
Triple lock: State pensions should rise each year at the highest level of inflation, average income growth or 2.5 percent
Last April, the triple lock was met and the state pension increased by 10.1 percent, in line with the inflation rate.
But the Government suspended the income element of the state pension increase in April 2022, because wage growth was temporarily distorted to more than 8 percent due to the pandemic, with pensioners getting a 3.1 increase instead. percent.
There is speculation that he could say that NHS bonuses have skewed the figure this time and that they are doing something similar for the second time in three years.
Pension experts are debating the issues surrounding the triple lock, including the reliance of many older people on the state pension, the burden on younger workers who pay for it and the possibility that increases to the state pension will have to be brought forward. age threshold.
Find out what they have to say below and vote in our poll on this crucial decision.
How much could the state pension rise until next April?
The full state pension is now £203.85 a week or £10,600 a year.
People who retired before April 2016 on a full basic state pension receive £156.20 per week or £8,120 per year, plus additional state pension entitlements (S2P and Serps) if earned during years of work.
The final figures for next year will be decided by the Government, and will likely be announced in the autumn statement on 22 November if the full 8.5 per cent increase is opted for. If they plan to modify it in some way, they could let the decision slip at a lower profile moment.
Calculations from investment platform AJ Bell make numbers on the main options.
Full Triple Lock – 8.5% Increase:
Fixed rate: £221.20 per week (£11,502.40 per year)
Basic rate: £169.50 per week (£8,814 per year)
Eliminate bonuses from salary growth: 7.8% increase:
Fixed rate: £219.75 per week (£11,427 per year)
Basic rate: £168.40 per week (£8,756.80 per year)
Use CPI inflation rate: 6.7% increase:
Fixed rate: £217.50 per week (£11,310 per year)
Basic rate: £166.65 per week (£8,665.80 per year)
All parties are likely to commit to triple blocking in the elections
An 8.5 per cent rise in state pensions may be seen as a price worth paying by Prime Minister Rishi Sunak given the proximity of the general election and with the Conservatives trailing Labor in the polls, according to Tom Selby, head of retirement policy at AJ Bell.
‘It is possible that the Treasury will argue that NHS bonus payments inflated July profits and instead opt for the lower figure of 7.8 per cent, which excludes bonuses.
“This would allow the government to claim it has delivered on the promise of the triple lock and at the same time save some cash, although it would inevitably face accusations of a sneak attack on pensioners’ incomes.”
Selby adds: “There is a good chance that we will go into the general election with all the major political parties committing to the triple lock in their respective manifestos.”
‘The triple lock remains a policy without an explicit target, randomly increasing the value of the state pension depending on income growth and inflation at a specific time each year.
‘An independent review with cross-party support may be needed to break the hold the triple lock has on the debate over the future of state pensions.
‘Politicians need to be brave enough to start an honest conversation about what the state pension is intended to offer in retirement, what it should look like in the long term and the associated costs. Without that, we risk remaining in a vicious cycle induced by the triple lock, where the only real question is whether that policy will be maintained or not.”
State pension decision is a political hot potato
“Rumors have not yet died down about whether the Government is considering excluding bonuses from the calculation of average earnings for next year’s rise, which could mean state pensions would rise by 7.8 per cent,” says Jon Greer, head of retirement policy at the Quilter.
‘This would save the government a significant chunk of change, but it would certainly be unpopular. Using this lower profit measure would save the Treasury approximately £900 million over the 2024/25 financial year.
‘Whatever decision the government makes, the triple lock remains a hot political issue and an area of pensions policy that no government wants to meddle in, as it will usually anger a core voter base if it changes dramatically.
We risk remaining in a triple lock-induced fatal cycle where the only real question is whether that policy will be maintained or not.
Tom Selby and AJ Bell
‘The level of increase granted under the triple lock is often combined with arguments about what the level of the state pension should be in relation to average full-time earnings.
‘Arguably there should be agreement on the level of the state pension and, separately, a fair mechanism to ensure its value is maintained over time. Without this approach, every time there is an increase in state pensions it will draw a dividing line that will pit generations against each other.”
More pensioners could start having to pay income tax
‘It could be a case of ‘be careful what you wish for!’ as a state pension that curbs inflation will only fuel the debate over the long-term affordability of the payment,” said Dean Butler, managing director of direct retail at Standard Life.
‘It is also worth considering the potential tax implications for pensioners. The personal allowance, which is the amount of income you can receive before paying taxes, has been frozen since 2021/2022 and currently remains fixed for quite a few years. [at £12,570].
“This means the full state pension payment has risen from 70 per cent of the allocation in 2019/20 to a likely 92 per cent next year, leaving pensioners with just £1,069 to spare before they start paying the income tax”.
“While the state pension is rising, it is worth remembering that it still falls short of the £12,800 a pensioner needs for even a minimum standard of living in retirement, according to the Pensions and Life Savings Association.”
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The government risks provoking the anger of pensioners
“There are reports that the Government is considering adjusting the earnings growth figure downwards to reflect recent one-off public sector bonuses which have created a ‘distortion’,” says Steven Cameron, pensions director at Aegon.
“While cutting it by as much as 1 per cent would save the Government money, it would risk incurring the anger of the retired population ahead of next year’s likely general election.”
But he adds: “While an 8.5 per cent rise would be good news for the spending power of state pensioners, it would do little to quell growing concerns that the triple lock in its current form is unsustainable in the long term.”
“With the burden on current workers paying the state pension through National Insurance rising sharply, even if the Government refrains from manipulating the figures this time, the current inflation figure will only amplify calls for whoever is in power after the general elections to review the triple lock to make it intergenerationally fair.’
Many retirees depend on the state pension
“The Prime Minister must now weigh up his party’s manifesto commitments, the state of the nation’s finances and his chances of success in the next general election before making a decision,” says Stephen Lowe, director of retirement specialist Just. Group.
‘It will not be an easy election, especially for a Conservative government whose party has traditionally relied heavily on older voters.
‘ONS data suggests that around 1.2 million pensioner households rely mainly on state pensions and other benefits to support their income.
‘Among single pensioners, women are almost three times more likely than men to rely heavily on the state pension. “These retirees will desperately hope that the government delivers on its promise of the triple lock.”
The government could accelerate the increase in the state pension age
The Government needs to consider how much people are paid in state pension and at what age they will receive it, says Patrick Thomson, head of research and policy at Phoenix Insights.
‘Increasing payments through the triple lock has meant that pensioners’ incomes have kept pace with or outpaced rising prices and wages. However, its affordability has come into question following a period of higher inflation and higher wage growth.
‘Bringing forward the increase in the state pension age may be an alternative lever that the government chooses to use to combat the affordability challenge.
“But any acceleration in the state pension age timeline must be accompanied by greater support for those most at financial risk and least likely to stay in work.”
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