State Pension changes: Will Triple Lock Scheme be axed?

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The State Pension Triple Lock scheme has guaranteed an income boost for retirees for the last decade. Introduced by the coalition government, the security has since ensured pensioners gain at least 2.5 percent more per year. The next increase comes in April 2021, but the COVID-19 pandemic has thrown the guarantee into doubt.

Will the Triple Lock scheme be axed?

The Triple Lock scheme pushes the income threshold for pensioners up by at least 2.5 percent per year.

The Government adjusts the rate depending on this baseline percentage, the highest price of inflation or average earnings growth.

Although it has so far pledged to stick by the plan, COVID-19 has caused the economy to falter.

September’s inflation rate clocked in at 0.5 percent, while wages took a one percent hit this summer.

The economic woes mean the third guarantee for State Pension will come into play, increasing the rate by 2.5 percent.

As such, the next increase will put £4.40 more in pensioners’ pockets per week to £179.60 on the New State Pension, or £137.65 on the basic rate.

While experts have not foretold an imminent collapse of the scheme, they have said the pandemic could have brought forward plans to scrap it.

Carl Emmerson, deputy director of the Institute for Fiscal Studies, told This Is Money the pandemic may leave generous increases to State Pension “unsustainable”.

He said: “The triple lock ensures that state pension payments do not fall in real terms during periods of economic turmoil.

“There are good reasons to want to do this. But these pensions will subsequently also be increased more quickly in line with the bounce back in earnings.

“Periods of turmoil such as this thus lead to a ratcheting up in the value of state pensions while living standards of the working-age population suffer.”

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“At some point this will prove unsustainable. The current pandemic has highlighted this and, I suspect, brought forward the date at which the triple lock is abandoned.”

Sarah Coles, a personal finance analyst at Hargreaves Lansdown, added calls to end the guarantee may see it altered instead.

She said calls to end the scheme emerged years ago, but have so far fallen on deaf ears.

Instead of axing it all together, she added the Government could choose to reduce its power.

Ms Coles said: “Next year, assuming furlough is at an end, wages are expected to rise significantly, so the triple lock would give state pensioners a huge pay rise at a time when the working population is still likely to be clawing their way back from the economic effects of the crisis.

“Many people have been calling time on the triple lock for years, but worries over its distorting effect on income between pensioners and workers in the fallout from the pandemic could tip it over the edge.

“This doesn’t necessarily mean some sort of guaranteed rise would be axed altogether.

“We could see the removal of the 2.5 percent underpin, or a smoothing of earnings, so the government could technically keep the lock while reducing its power.”

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