PAUSING the state pension triple lock will cost Brits thousands of pounds in retirement.
The pensioner benefit increases each year, but will now only rise by either 2.5% or inflation next April.
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The state pension usually rises according to the highest of three things: either earnings growth, inflation or 2.5%.
This triple lock, as it’s known, guarantees that people in retirement will continue to get a decent income and was a Consevative pledge during the election.
But the government is ditching earnings temporarily because Covid has drastically skewed the figures.
Wage growth is expected to exceed 8% – which would have given pensioners more than £700 a year extra.
The pensions minister Therese Coffey today announced that the triple lock will be suspended for one year only – but it means the government has breaken its manifesto pledge.
She said: “This year I anticipate an unusual change in earnings thanks to the impact of the Covid pandemic.
“Earnings have risen at an unprecedented rate and we face a distorted reflection of wages growth… 8.8 per cent compared to the same time next year.
“I am clear, another one year adjustment is needed.
“For 2022/23 only, we will make sure the state pension rises by 2.5% or in line with inflation, which is expected to be higher.
“It will set aside the earnings element for 2022/3 before being restored for the end of this Parliament.”
The Sun revealed that Tory MPs were being sounded out over the summer about their thoughts on whether there could be changes to the triple lock.
The Sun broke the news that ministers were considering downgrading the promise to a double lock, where state pensions rose by the higher of inflation or 2.5%.
The change to the triple lock comes at the same time the governement announced a hike to taxes to apy for the cost of social care, including the amount that workers pay in National Insurance contributions.
How much will a change to the triple lock cost?
A pause to the triple lock will cost those who get the state pension thousands of pounds over their retirement.
Calculations by LCP show that a rise of 2.5% next year as a one-off would cost retirees £11,000 in the long run compared to the expected bumper rise with earnings growth.
Steve Webb, partner at LCP and former pensions minister, said: “A much lower increase next April would mean a permanently lower pension… Small differences can add up to huge sums”.
The calculations are based on a 20-year retirement and compared to the 8.8% that wages are expected to grow by.
In the short term, the pause to the triple lock means that the state pension will rise next year by either 2.5% or inflation, which is predicted to be 3%.
The State Pension would rise by £4.50 per week from next April it it rises by 2.5%.
The current new state pension is worth £179.60 per week, so would increase to £184.10 per week.
Annually the state pension would rise from £9,339 to £9,573.
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If inflation was used and came in at 3%, as expected, the rise would be £5.40 per week, rising to £185 per week and £9,620 per year.
A rise with earnings of 8.8% would have increased the state pension by £15.80 to £195.40 a week and £10,160 per year.
Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown said the move to pause the triple lock would likely disappoint pensioners expecting and “inflation busting” increase.
“However, given many of the working population saw their income fall during the pandemic such a large increase would be unlikely to be popular at a time when the government needs to balance the books as the economy emerges from the pandemic,” she said.
She added: “The triple lock has played a role in boosting the incomes of pensioners over the past decade, but the current situation has exposed its flaws.
“The time has come to look at whether it remains the best way to preserve the long-term value of the state pension.”
How much is the state pension and how much will it rise next April?
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