The government’s commitment to the pensions triple lock could cost the Treasury £8bn, according to analysis from LCP partner, Steve Webb.
Data published by the Office for National Statistics this morning (October 17), estimated that the growth in average earnings in the year to July was 8.5 per cent.
This means the chancellor will have to increase the new state pension and the basic state pension by 8.5 per cent if he is to stick to his manifesto pledge.
As a result, the new state pension will rise by £17.35 per week or £902.20 per year, while the old ‘basic’ state pension will rise by £13.30 per week or £691.60 per year.
However, Webb added: “It is worth remembering that the UK still has one of the lowest state pensions in the western world.”
He additionally stated that there is “some way to go” before the value of the pension recovers from a 30-year period when it was linked only to price inflation.
“This increase will simply keep the rise in the state pension in line with the pay increases that many in work have enjoyed,” he explained.
However, Hargreaves Lansdown head of retirement analysis, Helen Morrissey, stated that the ONS’s recent figures have been “swollen” by the impact of one-off payments to civil servants and NHS workers over the summer.
“Average wage rises excluding bonuses remain at 7.8 per cent and, if the government adopted this figure it could make a saving on its state pension bill while also delivering what should be an inflation-beating increase for pensioners,” she advised.
“We have seen triple lock tinkering in the past, with the government opting for a double lock option during the pandemic when wage data was seen to be unfairly inflated by furlough.
“In the face of a rapidly rising bill, there’s every chance government could look to do so again.”
Hargreaves Lansdown head of personal finance, Sarah Coles, added: “Pay is racing ahead of inflation - as one of the fastest paces we’ve seen over the last 20 years.
“It has been slightly distorted by public pay settlements - which mean public sector pay rises have hit a record of 6.8 per cent.
“However, private sector pay is still rising faster than the state equivalent."
tom.dunstan@ft.com
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