Rishi Sunak, the Chancellor of the Exchequer, has attracted plenty of attention of late, and not just over his keenness to have his photo taken with an England top on, even with the price tags still attached.
The Chancellor has also raised the spectre of revamping the State Pension triple lock, prompted by the prospect of pensioners seeing an enormous increase in their incomes next year.
And while Sunak has come in for plenty of criticism for even considering such a move, I think he’s absolutely right to do so.
The triple lock
The triple lock was introduced by the Coalition government as a way of improving pensioner incomes and protecting them from the threats of inflation.
It guarantees that the State Pension increases every year, by whichever of the following three figures is biggest:
- The rate of inflation;
- The rate of wage growth;
It’s been a tremendous success, to the point that it’s become something that political parties fight over, each claiming that they are an even more strident supporter of the triple lock than their rivals.
An enormous increase
Of course, it’s also an incredibly expensive guarantee to have in place. And while Treasury wonks were already a little worried about how much it would continue to cost the government, Covid has only exacerbated those worries.
The economy took a big old hit last year, unsurprisingly, as entire industries were frozen due to the restrictions introduced to try to keep the pandemic under control.
But we aren’t in that place anymore, with much of the economy back up and running, and even those that have been kept under wraps until now ‒ like nightclubs ‒ set to reopen their doors within a matter of weeks.
And that’s led to a massive predicted rise in wages. From the lows of last year, off the back of job losses and furlough, average wages look set to jump by around 8%, according to the Office for Budget Responsibility.
That’s great news for the nation’s pensioners, who will see a big old jump in the State Pension they receive each week: at that rate, many retirees would get an increase of well over £700 a year.
It’s less good news for Rishi Sunak and the Treasury, however, who are staring down the barrel of an extra £3 billion in pension costs to hand out next year.
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A smooth operator
Sunak has since given interviews talking about the need to find “fairness both for pensioners but also for taxpayers”.
That’s a bit of a deviation from the usual line of the triple lock being a sacred cow that cannot be touched and seems to hint that the government is at least considering doing something different.
Some have suggested that it will outright scrap the triple lock, which seems incredibly far fetched to me.
Others have pointed to the potential to ‘smooth’ the increase, essentially trying to spread it out over a longer period so there’s less of a financial hit.
Ultimately, it will not only come down to what Sunak thinks is fair but also what he can get his political colleagues to stomach.
The triple lock has been an incredibly effective tool at boosting the size of the State Pension, ensuring that our older people aren’t left behind by rising prices.
And I’m in no doubt about the fact that our State Pension is far from generous, even now ‒ by European standards, we lag well behind, for example.
But I’m not sure how you can justify handing pensioners such an enormous income increase at this time.
The truth is that the nation’s workers aren’t really seeing big wage increases, as the figures might suggest.
What is actually happening is that they are clawing back some of the money lost over the last year from being made redundant, having to work reduced hours or see their wages cut.
Of course, it’s not the pensioners’ fault that the triple lock has been structured in this way, nor that events have been sufficiently crazy that an 8% hike in the State Pension could even be a possibility.
Yet for me, this just demonstrates the in-built flaws of the triple lock in the first place.
We’ve all gone through a torrid time over the last year and a half.
Yet while younger working people are still trying to pick up the pieces ‒ and let’s be honest, still face plenty of uncertainty in the months ahead ‒ older people are set to receive a massive pension increase.
Yes, we have to protect the State Pension income and ensure that older people are protected, that they have a solid financial base for their later years.
But I don’t believe the triple lock in its current form does that in a way that’s fair to everyone involved.
As I've written before, I think it needs to go entirely, to be replaced with a fresh format that still guarantees a decent increase to the State Pension, but is free from this sort of bizarre situation where the nation’s older population benefit from the difficulties working people have had to go through.