THE State Pension is on track to rise to £10,000 a year after fresh data was published today.
Wages are rising by a whopping 7.4% as the economy and jobs recover from the coronavirus pandemic.
1
But the figure is also used to dictate the State Pension rise which takes place each year in April.
The retirement benefit rises by the higher of three things: average wages, the consumer prices index (CPI) or 2.5% – this is known as the triple lock.
Average wages are now the highest of the three because CPI inflation is currently at 2.4%.
A 7.4% increase would bump up the State Pension payment to a little over £10,000 a year, from the current maximum of £9,340.
Economic forecasters have warned that wage growth could be even higher than today’s number and hit a high of 8%.
Steve Webb, former pensions minister and a partner at LCP, said: “Average earnings are well above their level a year ago, partly because some furloughed workers are back on full pay and also because some lower paid jobs have been lost altogether.”
The rate of wage growth is heading up as the economy grows again coming out of lockdown, coming in at 4.6% in March, 5.7% in April and 6.6% in May.
The state pension increased by 2.5% for April 2021 using the triple lock formula and rose by 3.9% in 2020 based on wage growth.
The latest figures for June put a question mark over the use of the triple lock for calculating rises.
Chancellor Rishi Sunak is reportedly considering a change to the triple lock to take into account a year of highly unusual data affected by Covid.
He could instead opt for a temporary “double lock” and exclude the wage data.
Another option being considered is averaging out the data over two years, however the Conservative Party’s election manifesto pledged to keep the triple lock.
The Sun previously revealed that Tory MPs were being sounded out about their thoughts on whether there could be changes to the triple lock.
Mr Webb said: “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, especially at a time when many working age benefits are about to be cut by £20 per week.
“This is ultimately a political judgment for the government, but the most likely option remains to look for a measure of earnings growth which strips out the effect of the pandemic.
“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”.
A change to the triple lock could drastically reduce the government’s spending which has rocketed because of Covid.
According to LCP, the Chancellor would save around £850m on State Pension spending for each 1% shaved off a rise.
Even a rise of 8% would leave pensioners £730 a year short of the minimum income standard, according to pensions firm Just Group.
The new State Pension provides a maximum of £9,340 a year, but the exact amount you get at retirement depends on how many years of National Insurance contributions you have and could be less.
Millions of Brits are now enrolled in a pension automatically through their workplace /to get them saving for retirement.
How much is the state pension and how much will it rise next April?
