It is thought that UK pensioners may be faced with a cut to the ‘triple lock’ pension scheme – but what is the scheme and why may it be cut? Here’s a look at some of the key points…
What is the ‘triple lock’ scheme?
The scheme originally introduced in 2010, has ensured a rise in yearly state pensions by the highest of one of the following three measures: average earnings, prices as measured by the consumer price index (CPI), or 2.5%.
However, a prediction by the Bank of England has outlined a potential 8% increase in average earnings and therefore an upwards of 8% increase in pensions. The prediction, estimated by the increase in earnings of people returning to work following the furlough scheme, would result in the treasury having to pay out £3bn.
Will the scheme be upheld in 2021?
In an interview with BBC News earlier in the summer, Rishi Sunak declined to clarify whether the scheme would be upheld in 2021 or not, stating that the decision would be made on “fairness for pensioners and for taxpayers”.
This is certainly not the first time since the start of 2021 that the Chancellor has had to make a tough decision over important financial cuts that are in the interest of the Treasury and the taxpayer. On 7 July it was confirmed that the Universal Credit booster scheme of £20 a week would end in the Autumn, withdrawing a financial lifeline to some UK citizens worst affected by the pandemic.
It could be viewed that the increase in pay for NHS staff by just 5%, among other public sector cuts, would make the 8% rise in pensions an exceptional and unlikely decision for the Government to make. Given the circumstances of the pandemic, some may see a cut to the scheme as difficult to justify and some organisations have warned about potential damaging impacts on the elderly of cutting the scheme. However, with the ‘triple lock’ scheme proving to be an expensive policy for the Conservative Government this year and likely every year until its’ planned end in 2024, the Chancellor may explore alternative measures to grow pensions in this new post-pandemic economy.
What has been suggested as an alternative to the current scheme?
David Willetts, the President of the Resolution Foundation think tank has suggested a complete revamp of the scheme to align more, “with the living standards of working-age people – a change that would be fair to all generations”. Alternatively, a theoretical ‘double lock’ system could be put in place, whereby pensions would only grow based on the highest of either inflation or wage growth; a change that was suggested during Theresa May’s time as Prime Minister.
It can be argued that the current system is not best suited for the financial limitations of the treasury post-Covid, nor is it fair for the average UK taxpayer as has been stressed by Sunak himself. With the current economic climate being so volatile, it is difficult to predict the route that the Chancellor and the Government will take with pensions. Whether they choose to continue the scheme after a suspension this year or completely scrap and revamp the triple lock scheme altogether, many British pensioners are rightly worried about the future of their pension finances.