The UK government has “no plans” to abolish the ‘triple lock’ that guarantees state pensions rise by at least 2.5% each year, according to a Downing Street source.
The claim conflicted with reports the Treasury is considering ditching the triple lock, a key policy and election pledge by the Conservatives over the past decade. It guarantees Britain’s basic state pension will rise by the highest of average prices, earnings or 2.5%.
The Financial Times reported Treasury fears that the policy “could soon become unaffordable” in the wake of the coronavirus crisis and its impact on the labour market.
Officials are said to be concerned about forecasts that average wages will soar in 2021, after falling sharply this year with millions of workers on furlough. The lock means the government would have to fund a corresponding sharp rise in state pension levels.
The government’s official response to the reports did not rule out scrapping the policy, which was in prime minister Boris Johnson’s election-winning manifesto in 2019.
“Announcements on tax and pensions policy are for Budgets. The government is committed to supporting pensioners,” said the Treasury and Number 10 in a joint statement.
But a Downing Street source then told Yahoo Finance UK on Wednesday: “These are unique and challenging economic circumstances and we can’t hide from that.
“Decisions on tax and pension policy are set out by the chancellor in budgets, but there are no plans to abolish the triple lock and we will always stand by pensioners.”
Any changes would likely prove controversial. It sparked a plea for caution from the Pensions and Lifetime Savings Assocation (PLSA), which represents 1,200 UK pension funds.
Nigel Peaple, director of policy and research at the PLSA, told Yahoo Finance UK: “The state pension still makes up the majority of retirement pension for most people. It is currently worth £9,110 per year.
“While it is important that the state pension is affordable to government, before changing the current policy on the triple lock, it is also important that they remember the key role it plays in helping everyone have an adequate pension.”
Union leaders also hit out at the reports. “Pushing the cost of coronavirus onto pensioners is wrong. Two million UK pensioners live in poverty, and over-65s account for nine in 10 COVID-19 deaths,” tweeted the Trades Union Congress (TUC).
“Pensioners have already paid a terrible price for this pandemic. Targeting them for cuts now is cruel.”
Think tanks argued the pension guarantee was ripe for reform and likely be scrapped eventually, however.
Carl Emmerson, deputy director at Institute for Fiscal Studies (IFS), noted a furloughed worker on 80% of their pay this year could see their earnings rise 25% to get back to normal in 2021.
“Therefore state pensions become much more generous in 2022. This is what the triple lock does: it allows those reliant on the state pension to enjoy fully the spoils of periods of strong earnings growth, while being very much protected from periods where earnings are weak.”
He added: “At some point we will have to get rid of the triple lock.”