State Pension Triple Lock Conundrum After Coronavirus
Published / Last Updated on 11/06/2020
The UK State Pension currently benefits from Triple Lock increases. In short, it increases each year by the higher of:
- Wages inflation (National Average Earning Index)
- Price inflation (Consumer Prices Index)
- Minimum 2.5%
Therefore, in September 2020, this is the point that state pension increases are set for the following new tax year, April 2021.
Given coronavirus and lockdown, wages inflation is predicted by the Office for Budget Responsibility to go negative and fall by -7.3%pa. CPI prices inflation is already crashing down and could go negative. This means that despite economic turmoil, lower wages and deflation, pensioners and many benefits may still get a pay rise of 2.5% (the minimum increase).
When we start to crystal ball gaze, one ‘think tank’, the Resolution Foundation has suggested that after coronavirus and with economic stimulus, wage inflation could hit 18% in 2021. This is of course artificial as it is a combination of recovery, plus usually expected growth for both 2020 and 2021 as well as usual inflation plus adjusted inflation increase recovering from falls in 2020 and possibly even higher inflation in a post Brexit world.
In short, state pensions could benefit from a minimum increase of 2.5% this year and then estimated at 18% next year under the triple lock. We don't think the government will allow 18% increases.
Many commentators are suggesting that the ‘triple lock’ must at least temporarily go.
