Currently, those who are in receipt of UK State Pension and resident in the UK or certain overseas jurisdictions, are protected by something known as the “triple lock”.
The Triple Lock ensures that State Pension payments increase annually in line with whichever of the following is the highest:
- Price inflation;
- Average wage growth;
- 2.5 per cent.
It now looks likely that this “lock” is going to be broken, at least temporarily.
The cause is, as is much these days, related to COVID.
12 months ago wage growth slumped due to the pandemic, which saw millions of workers placed on furlough or having their hours cut.
The subsequent economic recovery has resulted in a, statistical at least, surge in wages.
Figures from the Office for National Statistics showed that earnings, excluding bonuses, were up 7.4 per cent year-on-year in June.
As a result, the Office for Budget Responsibility said last month that pensioners could see their payouts rise by as much as 8 per cent from April 2022 if the Government sticks by its pledge to increase pensions in line with wage growth.
This would lead to a record increase in the state pension and an extra cost to the Treasury of billions.
The most likely outcome is that the Treasury will seek to reduce the impact of the spike in earnings by basing State Pension increases on price inflation or a two-year figure for wage growth which filters out the distortions caused by Covid.
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