Sunak waves bolt cutters around the triple lock

Rishi Sunak

Sarah Coles, personal finance analyst, Hargreaves Lansdown gives her view on the Chancellor’s latest comments:

“Rishi Sunak set the cat among the pigeons by departing from the usual line to defend the triple lock at all costs. The reference to fairness to taxpayers and pensioners, and highlighting concerns about costs, was the Chancellor waving bolt cutters around the triple lock – either to signal a break away from the policy or to gauge the reaction.

The crisis has thrown up an inherent problem with the mechanisms behind the triple lock, because it’s unable to cope with sudden and spikey wage changes. Sunak could address this by adding an element of smoothing of wage figures, so the spikes are evened out to a more gradual rise.

However, he might also use this as an opportunity to revisit the triple lock, which is a massive cost for the government at a time when it’s watching every penny.

The Treasury could choose to drop the third lock, so the pension just rises with the higher of wage increases or price inflation. This would avoid pension incomes dropping behind rises in the wider economy, so the government could argue that pensioners will be no worse off.

However, the function of the 2.5% guarantee was to build in gradual improvements to the state pension over time. This can be seen in the context of the fact that on average in OECD countries, pensioners receive 63% of their previous pay, while in the UK they get 29%. The government could choose to boost the state pension in one hit instead of taking this gradual approach, but at a time of government penny pinching, this seems unlikely.

Any removal of the 2.5% guarantee without an overall rise in the state pension would effectively mean signing us up to the current level of the state pension for the foreseeable future. This would have far-reaching consequences not just for today’s pensioners, but for today’s taxpayers who hope to draw a reasonable state pension in future. The state pension is the bedrock for millions of retirement incomes, so it’s no wonder that threats to the triple lock are so worrying for those who rely on it.”

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