Pensioners could lose £12,000 each if the government reneges on promises of state pensions

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The UK government is expected to scrap its promises of triple government pensions, in a move that could cost pensioners £11,000 each.

Chancellor Rishi Sunak is believed to be considering options to keep state pension spending under control and in line with other benefits.

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New numbers suggest triple unlocking will cost pensioners £11,000 Credit: Getty – Contributor

A triple lock is a pledge to increase the state’s pension by whichever is higher than earnings growth, inflation, or 2.5%.

It is a very valuable and vote-winning promise made by the Conservative government until 2024 in its 2019 manifesto.

But now, unusually high earnings figures mean the state pension could rise by as much as 8.8%.

If the triple lock remains in place, it means retirees could take in up to an extra £746.20 each year.

But experts cautioned that wouldn’t be fair, as earnings numbers have been distorted by the end of the vacation scheme.

The job retention system meant that many people cut their salaries last year while they were on vacation.

As they return to work, their salaries rebound to their usual pre-pandemic rates, making everyone’s wages look as if everyone’s wages rose when they didn’t.

Since the higher numbers began being reported, the government has been looking for solutions to keep the government’s pension bill in check.

The Sun broke the news that ministers are considering downgrading the promise to a double lock, as state pensions rise with inflation, or 2.5%.

But there are concerns that inflation levels may also rise, which means the Treasury is once again stuck with huge bills.

Now, a government source told The Times that the Treasury could decide on one lock-down — limiting increases to 2.5% over the next year.

This approach was the most likely option, the source said.

This means that retirees will lose out on both higher earnings and a gauge of CPI inflation.

Figures analyzed by the LCP suggest this could cost each retiree around £11,000 over the course of retirement.

According to the median income figures released yesterday, retirees had seen their payments rise by 8.8%, meaning an additional £15.80 was added to the new state pension.

If current CPI figures of 3% were used, the new state pension would rise by just £5.40 per week.

And if the government chooses to limit the increase to just 2.5%, pensioners will be paid just £4.50 a week.

That last figure is £11.30 less than the triple lock, which is £587.60 a year.

Over twenty years of retirement, LCP estimates there is a difference of over £11,000 per retiree.

“A much smaller increase next April means a permanent reduction in the pension… Small differences can lead to huge sums,” said Steve Webb, partner at LCP Consulting.

The move is likely to be very unpopular with retirees and those nearing retirement as the government will renege on its promises.

But industry experts say the triple lock has been unsustainable for several years now. In fact, increasing the state pension through earnings figures would cost the government a whopping £8 billion.

Sticking to a 2.5% increase keeps the Treasury bill down to £2.5 million saving the government £5.5 billion a year.

“An 8% increase would put an enormous strain on public finances at a time when the Treasury is already staring into a public finance black hole,” said Tom Selby, AJ Bell’s head of retirement policy.

“The triple lock is also politically controversial, especially against the backdrop of so many young people who have lost their jobs due to the pandemic. This is especially the case when you consider that the average earnings number is so high because it has been distorted by the pandemic, in large part because of the vacation scheme “.

Stephen Cameron, director of pensions at Aegon, added: “State retirement is paid through National Insurance contributions to today’s workers, so the government will face a difficult balancing process.

“There will be questions about intergenerational equity if the state’s retirees get what would be a twofold increase, paid by today’s workers, much higher than the wage increases these workers would normally receive.”

The government has agreed that higher state pension increases will be unfair when other benefits suffer and many people face stagnant wages and even layoffs.

The Treasury is already expected to spend £105 billion on state pension in 2021/22 and £130 billion on total pension benefits.

Since the triple lock was introduced, state pensions have increased by 35%, while average income has increased by 27% over the same period.

The full basic state pension in 2021/22 is £2050 a year higher in monetary terms than in 2010 – an increase of more than a third.

“It is very difficult to justify anything higher at a time when public sector salaries are frozen and there is economic uncertainty,” a government source told The Times.

A UK Treasury spokesperson told The Sun: “We will continue to support retirees while ensuring that future decisions are fair to both retirees and taxpayers.

“The government will confirm state pension rates for next year in the fall.”

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