Chancellor Rishi Sunak is under pressure to commit to a huge increase in the state pension next year, as the latest government figures show soaring wage growth in the UK.
The government has promised to protect the “triple lock” to push up pension payments – but Mr Sunak hinted last month it could be scrapped because voters would not consider it to be “fair”.
The triple lock guarantee now looks set to push up pensions by around 8 per cent – costing taxpayers between £3bn and £4bn – because wages have bounced back so sharply from the Covid crisis.
Average total earnings rose 8.8 per cent over the last quarter compared to the same period last year, according to the latest data from the Office for National Statistics.
Former pensions minister Steve Webb said such growth would increase the state pension from £9,340 to over £10,000 a year.
“These figures pile pressure on the chancellor, as he will want to stick to his triple lock policy, but not pay a huge increase to pensioners,” said the pensions expert.
Speculation has been rife that the chancellor may abandon the triple lock, the promise to raise state pension by the highest of three measures – the annual rise in average earnings, the annual rise in Consumer Prices Index (CPI), or 2.5 per cent.
Julian Jessop, economics fellow at the Institute for Economic Affairs, said: “The 8.8 per cent jump in average pay in the three months to June provides more ammunition for those arguing that the ‘triple lock’ on the state pension needs to be unpicked.”
The triple lock has long been criticised for shielding the elderly from any of the post-financial crash pain felt by younger generations.
Asked last month if it was “fair” that pensions could leap by 8 per cent while universal credit payments are cut, Mr Sunak said: “I think they are completely legitimate and fair concerns to raise.”
Mr Webb, pensions minister under David Cameron’s coalition government, now a partner at LCP financial consultants, said the most likely option for the chancellor was to look for a measure of earnings growth which “strips out” the effect of the pandemic.
He suggested using a measure of “underlying” earnings growth, knocking between 2.4 per cent and 3.8 per cent off the headline figures.
“This could save the chancellor several billion pounds a year whilst still allowing him to claim he had kept to the ‘spirit’ of the triple lock promise,” said Mr Webb.
However, some experts have warned about the plight of pensioners struggling on low incomes if the chancellor ditches the triple lock promise.
Even if the state pension was to increase by 8 per cent it would still leave a £730-a-year income gap compared to the Joseph Rowntree Foundation’s “minimum income standard” of £10,816, according to new analysis by the financial services firm Just Group.
“While to many an 8 per cent increase in the state pension will seem extraordinarily generous, our analysis shows even this level of uplift would still not give single pensioners an income the public thinks provides an acceptable minimum standard of living,” said Stephen Lowe, a director at Just Group.
Twice as many women as men aged over 65 are either single, widowed or divorced in England – 2.77 million women compared to 1.41 million men. And OECD figures estimate that women in the UK are likely, on average, to be receiving between 34 per cent and 43 per cent less in retirement than men.
Mr Lowe said: “There is already a substantial retirement income gender gap in the UK – removing some of the protections around the state pension sends a message from government that it is happy to risk damaging financial outcomes for women in later-life even further.”
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