Uncertainty surrounds the state pension this week as the Government revealed changes are to be made because of the impact of coronavirus.
In April 2020, the state pension went up 3.9 per cent, the biggest rise since 2012. in accordance with the triple lock policy.
That means the pension increases each year in line with wage growth, price rises or by 2.5 per cent, whichever of these three things is highest.
But Work and Pensions Secretary Therese Coffey says the Government will seek to make technical changes to the triple lock policy. That’s because household incomes are falling due to the impact of coronavirus and the Government lockdown.
Ms Coffey explained the Government needs to “rectify” aspects of the pensions triple lock if average earnings fall this year, as forecast.
Labour MP Jeff Smith (Manchester Withington) had asked whether the triple lock will be maintained.
Responding, Ms Coffey said: “Absolutely. This Government is absolutely committed to fulfilling its manifesto commitments.
“I think it is fair to say we have some situations ahead of us but it is something I’m in discussion with.
“This is not about abandoning the triple lock in any way.
“But I can assure him that there are some consequences – of which he may not be aware – if average earnings fall during this year that we need to rectify in order to make sure that aspects of the law that is already in place cannot be set aside.”
Work and Pensions minister Will Quince has also said that 200,000 people reaching state pension age while on Universal Credit will on average receive an extra £350 under new measures brought in by the Government.
Responding to a question on the state pension from Tory Mark Pawsey (Rugby), Mr Quince said: “The Government announced in March that anyone reaching state pension age whilst claiming Universal Credit will be eligible for a run-on until the end of the assessment period in which they reach state pension age.
“An estimated 200,000 people will benefit from this measure over the next five years, receiving on average an additional £350 each.
“I am pleased to confirm that regulations are being laid today to put this measure on a statutory footing.”
What is the current State Pension?
New State Pension from April 2020
- Full rate – increased from £168.60 to £175.20
- Transitional rate below full rate – increased 2.5859% to 3.9146%
- Protected Payment – decreased from 2.40% to 1.70
- Increments – own (based on deferred new State Pension) – decreased from 2.40% to 1.70%
- Increments – inherited (based on deferred old State Pension) – decreased from 2.40% to 1.70%
Old State Pension from April 2020
- Category A or B basic pension – increased from £129.20 to £134.25
- Category B (lower) basic pension – spouse or civil partner’ s insurance – increased from £77.45 to £80.45
- Category C or D – non-contributory – increased from £77.45 to £80.45
Additional pension from April 2020
- Decreased from 2.40% to 1.70%
- Maximum additional pension (own + inherited) – increased from £176.41 to £179.41
Increments from April 2020
- Basic pension – decreased from 2.40% to 1.70%
- Additional pension – decreased from 2.40% to 1.70%
- Graduated Retirement Benefit (GRB) – decreased from 2.40% to 1.70%
- Inheritable lump sum – decreased from 2.40% to 1.70%
What’s the pensions issue?
Concerns have been raised that the state pension could rise three times as fast as prices or earnings due to the sharp dip in wages caused by the coronavirus outbreak in 2020, followed by an expected spike in take-home pay next year.
The Bank of England is forecasting an unprecedented 2 per cent fall in nominal wages in the current calendar year, followed by a 4 per cent increase next year due to the impact of Covid-19, with millions of staff coming off furlough and economic activity likely to have reignited.
According to the Resolution Foundation, triple lock rules dictate that such a pay outlook would prompt a 2.5 per cent rise in the state pension next year, with inflation forecast to be well below the guaranteed rate rise, and a 5 per cent increase the year after, giving a two-year increase of 7.6 per cent.
That hike would be triple that of price rises, set to be 2.5 per cent, while considerably more than the predicted 1.5 per cent increase in earnings in the same time period, according to the think tank’s analysis.
It would mean the state pension would cost £3 billion more in 2022 than if it had kept pace with earnings, and £2.1 billion more than if it had kept pace with inflation.
Laura Gardiner, from the Resolution Foundation, said the increase was “hard to justify” when it would be working-age families “feeling the greatest pinch” in the aftermath of the Covid-19 crisis.
In its report, Locked In, published last Friday, the foundation recommends that ministers scrap the triple lock pension, labelling it a “mess”.
But Prime Minister Boris Johnson would have to break a manifesto pledge if he were to act on the report’s recommendation, having vowed to keep it in place during his winning campaign last year.