Treasury Committee calls for suspension of earnings link in triple lock

The triple lock ensures that state pension incomes are guaranteed to be uprated each year by wage growth, inflation or 2.5%; whichever is higher.

The state pension triple lock has been effective since 2012. Since then, the 2.5% measure has been used four times, while average earnings growth and CPI inflation have each been used three times, according to a government research paper.

In addition, it is a legal requirement that the increase has to be at least in line with average earnings.

Although price inflation is increasing rapidly, earnings are growing much faster. This means that it is likely to be the earnings element of the triple lock which is the largest when the decision is made in the Autumn on the state pension rate for April 2022.

The latest data from the ONS shows that earnings are currently 8.8% higher than in 2020, when millions were furloughed during the Covid-19 pandemic.

Mel Stride, Chair of the Treasury Committee, said: "Over the last decade, the pensions triple lock has successfully protected the incomes of older people, who often have limited opportunities to increase their earnings. However, the ‘triple lock’ is unsustainable in its current form. A potential almost double-digit percentage rise is unrealistic and unfair, with knock-on effects for the public finances.

“Given that average wage levels have been skewed by the unprecedented events of the past 18 months, the Chancellor should temporarily suspend the wages element of the lock. This is a sensible approach which will aid our recovery from the pandemic.”

Becky O’Connor, head of pensions and savings at interactive investor, commented: “The triple lock is a hugely valuable guarantee. Post-pandemic wage data risks causing an artificially large rise, so losing the earnings element of the lock temporarily to avoid an unfair increase in the state pension sounds sensible - in theory.

“However, in practice, there is a risk that any temporary measure becomes permanent. If the earnings element of the lock was lost for good, this could mean that pensioners’ living standards could fall behind those of the working population, in periods when wage growth genuinely exceeds 2.5% or inflation.

“If a change of this kind is to be made now, then a timeline for a commitment to return to the triple lock might provide reassurance that this element of the guarantee would not be gone forever.”