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State Pensions have been guaranteed to rise every year since 2011 when the triple lock was introduced. However, with the Treasury estimating the UK could fork out more than £300bn by the end of the 2020/2021 financial year to support people and businesses during the coronavirus pandemic, many economists have suggested the triple lock pension system may be under threat.
The fate of the triple lock guarantee over State Pensions is believed to have caused a rift among Government officials.
Prime Minister Boris Johnson is reportedly keen to maintain his election promise to maintain it.
The Conservatives and Labour both pledged support for the triple lock in the December 2019 election.
Critics of the triple lock system claim it is too generous and is unsustainable for workers who fund the scheme via their National Insurance contributions.
What is the triple lock system?
The triple lock on the State Pension was introduced in 2011 by the coalition Government.
This system guarantees the State Pension will rise by a minimum of either 2.5 percent, the rate of inflation or average earnings growth – whichever is largest of these.
Before 2011, State Pension rose in line with the retail prices index measure of inflation, which was consistently lower than annual risings in earnings or 2.5 percent.
How does the triple lock work?
The system will raise in accordance with the greatest of the following three measures:
- Average earnings
- Prices, as measured by the Consumer Prices Index (CPI)
- 2.5 percent.
Under this system, the State Pension rose by 3.9 percent this April to match the average earnings increase seen by UK workers in July last year.
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Why might the triple lock system be axed?
The triple lock State Pension guarantee may come under threat as a result of the Government finding funds to pay the huge coronavirus bill according to a former pensions minister.
Think tank Social Market Foundation (SMF) suggested scrapping the triple lock earlier this year as a means to ensure the financial cost of the crisis was shared by all generations.
The SMF said any future austerity programme must not favour pension benefits over working-age welfare.
However, critics of scrapping the triple lock argue this move could leave thousands of pensioners worse off.
By 2050, scrapping the triple lock would leave 700,000 more pensioners in poverty according to a report from Age UK.
Overall, this would leave 3.5 million older people in a state of poverty compared to 2.8 million now.
The Pensions Policy Institute has estimated that around 700,000 people could fall into poverty by 2050 if it is scrapped.
The SMF has instead proposed introducing scrapping the triple lock system and introducing a double lock system.
This new system would see the 2.5 percent minimum rise removed from the guarantee list.
Instead, the guarantee would only involve the two parameters: the rate of inflation and average earnings growth.
Experts claim removing the triple lock may not be felt by current pensioners, but would be felt by those due to retire over the next 10 to 20 years.
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