Govt rejects Lords’ attempt to retain state pension triple lock

In a debate on Monday, the government said it would stick with its decision to temporarily suspend the wages element of the pensions triple lock for 2022-23, to avoid a disproportionate rise of the state pension following the pandemic.

This is despite peers in the House of Lords calling for the link between pension uprating and earnings to be maintained.

In the debate, pensions minister Guy Opperman said it would be “reckless” for the government to maintain the link this year because the data relating to earnings is skewed by the pandemic and the furlough scheme.

He said: “[Office for National Statistics] experts investigated whether it was possible to produce a single robust figure for underlying earnings growth that stripped out impacts from the pandemic, and concluded that it was not possible.

“We believe it would be reckless in procedure and in law for this, or any other government, to set a precedent for uprating benefits or pensions using a methodology that is not robust and for which there is no consensus. That is why the government has decided to suspend the earnings link in this year of exceptional and anomalous earnings growth.”

With the earnings component stripped out, state pensions will increase by September’s consumer price index rate of 3.1 per cent next April.

But Steven Cameron, pensions director at Aegon, said the latest inflation figures to be published on Wednesday are expected to surge to 4 per cent or above, with further increases likely over the winter.

Indeed, the Bank of England has predicted inflation could reach 5 per cent next year, before falling back.

Cameron said: “Most would agree maintaining the state pension triple lock in its unadjusted form would have failed the test of intergenerational fairness, granting pensioners a ‘pandemic windfall’ increase of over 8 per cent, arising from distortions in earnings during furlough.

“The multibillion pound cost of this would have been met from the national insurance of today’s workers. But taking away the earnings component entirely, and using an inflation figure which is already past its sell-by date, is a double whammy to those for whom the state pension is their main or only income in retirement.”

During the debate, Stephen Timms, chair of the Work and Pensions Committee, warned that people must be able to trust in the state pension under government policies. 

“They have been able to do so up to now, and now they will not. That raises a pretty fundamental question about the future of the government’s pensions policy,” he said. 

“There is a real danger in allowing — almost by sleight of hand albeit for reasons that we all understand and sympathise with — the state pension to fall permanently behind the increase in earnings and weakening the pension framework that, as far as we all know, is still the basis of the minister’s policy.” 

Timms continued: “We should not allow that to happen. We need either a measure, and the minister needs to reassure us that there will be, such as a catch-up initiative to make sure that the state pension over time — not this year, but by next year or the year after — will keep track with the increase in earnings, or the House needs to accept the amendment agreed with a significant majority in the other place, because that keeps the pension framework in place and keeps it effective.”

Opperman repeated the government’s insistence that the suspension of the earnings link would only last for one year.

He added: “I remind the House that, over the two years of the pandemic, the government will have ensured that the pensions covered by this bill will have increased by much more than prices, by reason of the 2.5 per cent increase last year and the link to [inflation] this year.”

This article originally appeared on FTAdviser.com