Earnings data published today shows wage growth – which is used to determine the annual state pension rise – is at 8.8% due to mass redundancies, wage cuts and furlough
Rishi Sunak is under pressure to make a decision on April’s state pension pay rise which could cost the government £5billion due to Covid.
Under the terms of the ‘triple lock’ – the state pension must rise by the highest of average earnings, inflation or 2.5% every year.
However, payroll figures, skewed due to furlough, show total pay, including bonuses, rose by 8.8% in the three months to June, while regular pay was up 7.4%.
That means the state pension must rise by the same amount – giving the elderly a record pay rise.
Under the triple lock, next month’s figure will be used to set the annual rise in the state pension.
It is estimated that if he sticks to it, it would cost the Treasury £5billion more than a 2.5% increase.
Former pensions minister Steve Webb pointed out that a 7.4% rise would take the state provision above £10,000 a year.
“The Chancellor won’t welcome this morning’s average earnings numbers,” he tweeted.
“The new figure this morning is 7.4 per cent, compared with 6.6 per cent last month.
“Next month’s figure is the one that drives the triple lock, but this piles on pressure on him to ”fudge” the earnings numbers.’
Laith Khalaf, head of investment analysis at AJ Bell, said: “The high rate of headline earnings growth does hem the government into a tight little corner on the state pension triple lock.
“The conservative manifesto commits to maintaining the triple lock, but an 8 per cent rise in the state pension would raise questions of intergenerational fairness, as well as fiscal sustainability.”
“That’s particularly the case given the statistical distortions caused in the headline earnings figures by the pandemic.
“The government normally uses the earnings growth figure published in September to determine the triple lock, and on current trends, the numbers don’t look like they’re heading in a direction that will dig them out of a hole, so some creative thinking may be required.”
According to reports, one option being examined by the Chancellor is a “double lock”.
The plan would only be implemented for one year and would raise pensions by the larger of 2.5% or September’s Consumer Prices Index inflation.
Consultant Capital Economics predicts the Consumer Price Index to stand at 3.1% in September.
Another option that is reportedly being examined by Sunak includes using Office for National Statistics (ONS) estimates of wage growth stripping out the effect of the pandemic, or taking an average of earnings over two or three years.
A statement said: “The Chancellor has said previously, that the triple lock is government policy. But we’ll recognise people’s concerns.
“We will obviously keep figures and numbers under review, as we always do and take any decisions at the appropriate time.”
What is the pensions triple lock?
Despite popular belief, there is no state pension retirement ‘pot’ that is built up as we work and pay National Insurance.
Instead, the state pension for retirees today is paid by people currently working.
The state pension is usually paid every four weeks, in arrears.
Under the triple lock arrangement agreed in the Tory manifesto, the state pension must by the highest of inflation, 2.5% or average wage growth during a set period each April.
This is separate to your workplace pension which is privately invested by you and your employer. Workers over the age of 22 and earning £10,000 or more a year are automatically enrolled onto it and your employer will, in most cases, match your contributions. Anything you pay in each month is tax-free.
If you you have shortfall in your pension, you may be able to apply for pension credits to top it up.
How to prepare for retirement