Elderly people should contain their hopes that the state pension triple lock will be saved after a House of Lords rebellion, financial experts warn.
The Lords passed an amendment by 220 votes to 178, calling on the Government to rethink plans to suspend the valuable guarantee for one year, but adjust it to take account of pandemic distortions.
However, this is likely to be overturned by MPs when the legislation returns to the House of Commons.
Under the triple lock, the state pension increases by the highest of price inflation, average earnings growth or 2.5 per cent. And the decision to ditch it, if only temporarily, has angered many elderly people.
Triple lock: Many pensioners are angry it has been ditched for one year
Pay cuts and job losses when the Covid-19 crisis struck in 2020 artificially boosted wages by comparison this year.
However, some 93 per cent in a This is Money poll – voted on by 22,000 readers -wanted the Government to keep its commitment and fund a bigger rise.
Pension campaigner Ros Altmann, who led the revolt in the Lords, said the amended bill would honour the triple lock promise and the Conservative manifesto commitment to it.
She says: ‘The Government is able to adjust the earnings data to account for the impact of the pandemic measures.
‘We are already in a cost of living crisis and official forecasts are for inflation to rise to 4 per cent and maybe much more next year.’
What is the impact of axing the triple lock for a year?
The key earnings growth figure which would ordinarily have decided the state pension increase from next April was 8.3 per cent.
Instead, the Government has
An 8.3 per cent increase would have meant a rise in the basic rate to £149.00 or around £7,750, and in the full flat rate to £194.50 and around £10,110 a year.
But the basic state pension will now rise by £4.25 to £141.85 per week, or around £7,370 a year. And the full flat rate will rise by £5.55 to £185.15 per week, or around £9,630 a year.
If the 4 per cent inflation rate forecast for next year was used, the basic rate would go up to £143.10 a week or £7,440 a year, and the flat rate to £186.80 or £9,710.
Lady Altmann added: ‘It is a matter of principle and trust. Pensioners are not a piggy bank for Chancellors to raid when money is tight.
‘They are not a cash machine that the Treasury can take money from when they want to spend on other priorities. Pensioners deserve better.’
However, pension experts warn that the Government will probably win a vote to keep its one-year suspension when the issue returns to the House of Commons. We round up their views below.
Government is unlikely to budge
‘Scrapping the state pension triple lock – a Conservative manifesto commitment – for one year was always going to be controversial, with pensioners set to miss out on a post-lockdown 8.3 per cent boost in their retirement incomes,’ says Tom Selby, head of retirement policy at AJ Bell.
‘While a 3.1 per cent inflation increase is better than nothing, with prices expected to rise by 4 oer cent over the next 12 months this is likely to feel like a cut in real terms for millions of retirees.
‘However, the Government has already banked over £5billion a year in annual savings from the move and so is highly unlikely to budge from its position.
‘If the triple lock were to be retained, the revised earnings measure would likely need to save the Exchequer almost exactly the same amount of money as scrapping the triple lock – meaning the net impact on those in receipt of the state pension would in any event be relatively small.’
Lords rejection is only a fleeting glimmer of hope
‘In real terms, pensioners may be left out of pocket if the suspension is passed, albeit that inflation during 2022 will be reflected in the uprating mechanism for 2023, ‘ says Jon Greer, head of retirement policy at Quilter.
‘But that may be held in scant regard by many pensioners in the immediate term.
‘While a defeat is embarrassing for the government, the Bill will return to the Commons where the amendment is expected to be voted down as they have privilege on financial matters.
‘The debate surrounding the triple lock only further demonstrates the need to separate arguments around the level of the state pension and the method for uprating the state pension to ensure it is done in a way that is fair and sustainable.
‘The Lords rejection likely gave pensioners a fleeting glimmer of hope, but they shouldn’t hold their breath.’
An 8.3% rise is unrealistic, but 3.1% looks harsh
Steven Cameron, pensions director at Aegon, says: ‘Most would agree maintaining the state pension triple lock in its unadjusted form would fail the test of intergenerational fairness, granting pensioners an unrealistic increase of over 8 per cent resulting from distortions in earnings growth figures during the pandemic.
‘But during a period of economic volatility and inflation expected to average 4 per cent over the coming year, it’s becoming increasingly clear that the government may have been too hasty to pull the trigger on the triple lock entirely.
‘With the earnings distortions evident over the spring and early summer, we alongside many pensions experts offered suggestions for a fairer approach, allowing the government to keep its manifesto commitment of maintaining the spirit of the triple lock while ensuring pensioners aren’t left out in the cold.
‘These include smoothing out increases in earnings over a two or three year period or basing the increase on an earnings growth figure calculated by the official statisticians with the pandemic distortions stripped out.
‘While 8.3 per cent continues to look extremely generous, 3.1 per cent is now looking harsh against the broad acceptance we’ll see sharp winter rises in the cost of living as well as in heating costs which disproportionately affect pensioners.’
‘The vote on the triple lock will now go back to the government where MPs may now be persuaded to look again at a fairer middle ground.’
Pensioners might be unable to cover essential bills
Becky O’Connor, head of pensions and savings at Interactive Investor, says: ‘Millions of people who depend on the state pension have been offered a faint glimmer of hope this week that their income will continue to adequately cover rising living costs.
‘The House of Lords backed an amendment to use an alternative earnings figure rather than ditch the earnings element of the triple lock guarantee completely.
‘But the result of the vote will depend on whether it is backed by the House of Commons and if the Government can agree on a fair level for next year’s rise, given that the inflation and earnings data that usually form part of the triple lock have been so distorted by the pandemic.
‘Inflation is likely to run higher in the coming months than the 3.1 per cent recorded in September, which under the Government’s plan to suspend the triple lock for a year, announced in September, is set to determine next April’s rise in the state pension.
‘As a result of rising inflation, the fear is that pensioners could still be unable to cover their essential outgoings, such as energy and food bills, if this figure is used for the uprating.’
O’Connor says the earnings figure was considered an unfairly high rise for pensioners, but the Government has committed to reinstate it after a year, and the Lords vote would probably help that cause.
‘There is always a risk it would not revert back as promised, particularly as doing so could result in a further cost to the Government’s benefits bill. This amendment would potentially remove some of that risk.’
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