At an evidence session yesterday (July 15) Rishi Sunak faced questions from Labour MP Mike Hill on whether it was acceptable to break manifesto commitments on the triple lock.
The chancellor stood firmly by his mantra of not being able to comment on "future fiscal policy", one which he repeated multiple times throughout the committee session.
But Mr Sunak added: "Your committee on the triple lock has had evidence from others which has pointed out the anomaly in the way that it might work, depending on the very particular trajectory of earnings declines and the rapid rises over the next few years.
"I think your committee is very abreast of the particular mechanical issues that causes, which are appropriate for people to raise and appropriate for us to look at at the right time.
"But commenting on future policy is not something I can do."
It comes amid predictions government interventions to help boost the UK’s job market could help spare the pensions triple lock, with average earnings growth likely to be less extreme over the next two years than originally expected.
The Office for Budget Responsibility (OBR) expects volatility of future earnings growth to be dampened due to government interventions, such as the Coronavirus Job Retention Scheme, helping to boost the job market.
It had previously suggested the UK’s economic lockdown could see average earnings crash by 7.3 per cent in 2020 before rebounding 18.3 per cent in 2021.
As the pensions triple lock is linked to earnings growth, this could have seen individuals' state pension payments increase significantly, with the government having to foot the bill.
But in its latest fiscal sustainability report the OBR projected that average wages will increase by only 4.2 per cent in 2021.
Under current rules, the state pension is increased by the highest of earnings growth, price inflation, or 2.5 per cent a year.
In the OBR’s ‘central scenario’, the ‘triple-lock’ will boost the value of the state pension by 2.5 per cent for 2021 and then a further 5 per cent for 2022.
Tom Selby, senior analyst at AJ Bell said: “The [wage growth] scenario could have seen the value of the state pension rise by over 21 per cent in just two years as a result of the ‘triple-lock’– a potentially unsustainable increase given the scale of public borrowing.
“A handout of this nature to retirees at a time when millions of workers are facing severe hardship would also have been difficult to justify.
“However, with volatility in average earnings growth now expected to be dampened as a result of government interventions, the chancellor may just have enough leeway to spare one of Boris Johnson’s key manifesto commitments.”
But he warned a review of the triple lock may be necessary as it still remains expensive.
Based on OBR projections, by 2024/25 the triple lock will cost the exchequer £6bn more than if the state pension was to rise in line with CPI inflation.
Meanwhile, it will cost £3.2bn more in state pension spending than if it were linked to earnings and £1.8bn more than if there were a double lock system.
Mr Selby said: “While clearly maintaining the triple-lock would be good news for pensioners – and potentially provide a bumper income increase in 2022 - it remains an odd policy which should be reviewed.
“Randomly ratcheting up the real value of the state pension without ever saying what the target value is makes little sense.
"Furthermore, recent events have shown that in extreme economic circumstances the Treasury faces the risk of being left footing a massive state pension bill.”
Many across the pensions industry thought that chancellor Rishi Sunak would take the opportunity to scrap the triple lock in his summer economic statement last week (July 8).
In their manifesto the Conservatives vowed to stick to their pension triple lock promise but the government has since been advised to use this option to pay off some of its coronavirus debts.
Instead he announced the second phase of the government’s response to the coronavirus pandemic and set out a plan for jobs given the current conditions.
amy.austin@ft.com
What do you think about the issues raised by this story? Email us on fa.letters@ft.com to let us know.
