State Pension  

Disappointment for pensioners as wage growth hits 8.3%

Disappointment for pensioners as wage growth hits 8.3%

There will be a sense of disappointment for many pensioners as annual wage growth has hit 8.3 per cent but the state pension will not increase by the same.

According to data from the Office for National Statistics (ONS) out this morning (September 14), growth in average total pay (including bonuses) was 8.3 per cent and regular pay (excluding bonuses) was 6.8 per cent in the three months to July 2021.

As September’s figure is taken for the pensions triple lock calculation to determine state pension increases in the following year, pensioners were in line for a 8.3 per cent increase, raising it from £179.60 per week to £194.50.

People on the basic rate state pension would have had their payment increased from £137.60 per week to £149.00.

However, last week (September 7) the government suspended the earnings element of the triple lock for one year, meaning the state pension increase will be the higher of 2.5 per cent and inflation.

The government said the decision was made to stop pensioners "unfairly benefiting from a statistical anomaly" and the policy would be reinstated in the following year.

Helen Morrissey, senior pension and retirement analyst at Hargreaves Lansdown, said: “It is well known earnings data has been distorted by the effect of furlough and to award such increases at a time when the working population is struggling with the fall out of the pandemic would not have been popular.

“The data stripped out some of the distorting effects of the pandemic, but even doing this would have left the door open for rises of somewhere between 3.6 and 5.1 per cent - again an increase towards the upper end of this scale may have been seen as unfair. 

“We will wait to see what the future holds for the triple lock after this year’s suspension and await next month’s inflation figures to see what next year’s increase is likely to be.”

Ian Browne, pensions expert at Quilter, said today’s data will “likely be a source of grief for pensioners” as the increase they could have received is made clear.

Browne added: “While many will be unhappy having now received confirmation of what they could have had, the data only really serves to prove that a one off scrapping of the average earnings element was the right thing to do. 

“Had the triple lock not been amended, billions would have been spent on the pension increase during an already difficult year for public spending.”

There had been speculation the government would scrap the state pension uprating guarantee as pressure mounted after average earnings continued to jump following the furlough programme during the pandemic year. 

Last month’s figures from the ONS showed growth in average total pay was 8.8 per cent and regular pay (excluding bonuses) was 7.4 per cent in the three months to June 2021.

amy.austin@ft.com

What do you think about the issues raised by this story? Email us on FTAletters@ft.com to let us know