State Pension is a sum of money which is given to eligible retired people who have often put in years of hard work and National Insurance contributions. The Triple Lock Mechanism was developed in order to protect the pension sum for future pensioners. The system is a guarantee for the pension to rise on an annual basis based on one of three main components.
This figure rises by a minimum of either 2.5 percent, the rate of inflation or average earnings growth – whichever is largest of these.
In the most recent tax year, this sum rose by 3.9 percent, in line with average earnings across the UK.
However, before the Triple Lock was introduced in 2011, the State Pension sum simply rose in line with the Retail Price Index – a measure of inflation.
Recently, there has been speculation regarding how the mechanism will be approached going forward.
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“The triple lock formula grants state pensioners the highest of earnings growth to July, inflation till September, which will be announced next month, or a minimum of 2.5 percent.
“With furlough distortions leading to negative earnings growth at minus one percent and price inflation hovering around one percent, the current formula would lead to the state pension increasing by 2.5 percent next April, 3.5 percent above the average increase in earning for the last 12 months.”
Under current state pension rules, the 2.5 minimum increase in April 2021 is perhaps most likely due to a fall in earnings and low inflation.
But retaining this system could see pensioners get a potentially larger increase in 2022, if earnings shoot up.
But Mr Cameron also questioned what this would mean for intergenerational fairness.
However, as earnings have not drastically dropped as dreaded, there may be hope for the way the system operates.
He continued: “There has been speculation of tension between the Prime Minister not wanting to break a Manifesto commitment to retain the triple lock and the Chancellor fearing an unaffordable increase in the state pension bill.
“With earnings not having taken the fall many feared, a bounce back the next year may also be less pronounced, avoiding an extreme increase to state pensions in 2022.
“But if there remain concerns over future earnings volatility, adjusting the formula by averaging out earnings growth over two years would strike a fair intergenerational balance.
“This would see state pensioners receive an expected 2.5 percent increase next April, with the increase in 2022 factoring in how earnings have performed over a two year period.”
The government has so far promised that it will keep all of its manifesto commitments, including the Triple Lock policy.
However, if any changes do occur, it is expected these will be announced in the Chancellor’s upcoming Budget.