Mel Stride, chairman of the Treasury committee, has called on the government to temporarily suspend the earnings link which forms part of the pensions triple lock to mitigate any extraordinary rises that may occur as a result of coronavirus.
Mr Stride said suspending the wages element would help avoid a possible double-digit increase in the state pension in coming years.
This was in response to experts warning a recovery of the significant average wage drops seen this year due to the pandemic could mean extraordinary rises next year.
Mr Stride said: “The pensions triple lock will produce unintended consequences in its current form. This is largely due to the fact that in 2021 there will be a very significant increase in average wages relative to the level this year, which will have been depressed by millions of workers on furlough.
“Inflation is also significantly lower than anticipated prior to the crisis, which will take some pressure off living costs.
“The chancellor will need to address the lock by carefully balancing the importance of protecting the income of older people, who often have limited opportunities for increasing their earnings, against the impact on the public finances.”
He added: “A way forward might be to temporarily suspend the wages element of the lock. This might not entirely conform to the Conservative Party manifesto, but I think most people would recognise that a potential double-digit percentage increase is unrealistic.”
Under the triple lock policy, the state pension is increased by the highest of earnings growth, price inflation or 2.5 per cent a year.
Therefore, as inflation is low at the moment, a mere 0.5 per cent in May, the state pension is likely to be increased by a minimum of 2.5 per cent or earnings growth.
And as a result of the furlough scheme there could be a sharp decline in average earnings this year followed by a quick and full recovery in the next causing a double figure increase in 2022.
Mr Stride’s comments come after reports that chancellor Rishi Sunak is preparing to break the Conservative party's manifesto pledge and scrap the triple lock to pay off Covid-19 debts, despite earlier insistence by government ministers that this would not be the case.
Earlier this week (June 15), former pension minister Sir Steve Webb suggested a period of negative inflation was the time to abolish the triple lock, or justify a smaller increase, because it would mean prices are falling and therefore pensioner living standards would already be improved.
amy.austin@ft.com
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