The state pension triple lock will have to be scrapped next year to avoid increasing payouts by nearly a fifth, experts have warned.
Speaking at a Treasury select committee this morning (June 9), Torsten Bell, chief executive of think tank the Resolution Foundation, told MPs the triple lock “was going in its current form, at least temporarily” from next year as average earnings were expected to increase by 18 per cent.
Mr Bell said the Office for Budget Responsibility had predicted average earnings would fall by 7.3 per cent this year amid the coronavirus crisis and in light of the fact a quarter of the workforce was receiving 80 per cent of their pay from the furlough scheme.
However, the office predicted the earnings would then see an 18 per cent increase next year as the furlough scheme came to a close and the country was expected to begin its recovery from the crisis caused by the pandemic.
But Mr Bell said: “We’re not going to increase the state pension by 18 per cent next year. So the triple lock is going in its current form at least temporarily next year, unless [some MPs] are considering giving very generous increases to pensioners next year.
“However, I expect we will not be increasing it by nearly a fifth.”
Under current rules, the state pension is increased by the triple lock which is the highest of earnings growth, price inflation or 2.5 per cent a year.
Therefore, if average earnings growth increased by 18 per cent the state pension would have to follow.
Mr Bell was responding to Labour member for Mitcham and Morden, Siobhain McDonagh, who asked the panel whether the government should review the triple lock as the state pension accounted for 44 per cent of welfare spending.
The committee heard the triple lock was a “fundamentally poorly designed policy” regardless of whether the government’s objective was to increase spending on the pensioner population.
Dr Gemma Tetlow, chief economist at the Institute for Government, said: “The 2.5 per cent rule is in there for the entirely arbitrary reason that some years ago, when inflation and growth was very low, the 2.5 per cent was thrown in to make sure the pension went up by something each year.
“It does not relate to the costs of living or replacing previous earnings — it is completely arbitrary.”
Ms Tetlow added the triple lock had a negative impact on how young people saved and looked to their future as it was impossible to predict how the state pension was going to increase based on a “random triple lock”.
Last month (May 13), chancellor Rishi Sunak was advised to scrap the policy on state pension rises as a way to recoup the hundreds of billions of pounds the government has spent on Covid-19 support.
But soon after, pensions minister Guy Opperman said the government had not yet made an impact assessment of scrapping the election promise, saying it was “committed to ensuring that older people are able to live with the dignity and respect they deserve, and the state pension is the foundation of state support for older people”.