Scramble to save state pension rises as coronavirus hammers earnings

The Government is rushing to change the law to stop state pensions being frozen next year.

Despite the Conservatives promising to increase payouts to pensioners by at least 2.5% a year, every year, it has emerged that increasing pensions in 2021 might have been impossible.

Aegon pensions director Steven Cameron said:“State pensioners are on tenterhooks waiting to find out if the Government will continue to honour a Manifesto commitment."

The problem has been thrown up because, under current rules, the state pension can only be increased if there has been a rise in average earnings in the relevant period of the preceding year.

With millions of people furlough on 80% of their pay or less, unless the law is changed fast that promise will be broken.

Pensions could be frozen (Getty)

"This obscure technical detail has escaped the notice of pensions experts and had the Government used this to justify no state pension increase next April, would have come as a shock to millions of state pensioners," Cameron said.

In response, work and pensions secretary Thérèse Coffey is introducing a technical Bill in the House of Commons to give the Government the ability to increase the state pension next year.

Coffey said: “The Government has worked hard to protect all age groups during the pandemic, strengthening the welfare safety net, introducing furlough and income protection schemes, as well as supporting those who have lost their jobs back into work.

“It is only right, then, that we also ensure pensioners can see their incomes protected as we build back better.

“In these difficult times, I want to give pensioners peace of mind about their financial health.”

However, Cameron warned there might be more problems to come.

“While removing the legal barrier to granting an increase is welcome news, it may not be the final twist in the tail of the triple lock saga as it’s still to be seen if the Government will stick rigidly to this formula year on year," he said.

"Doing so could see pensioners receive a 2.5% uplift next April and a much higher increase the following April if earnings growth rebounds after falling.

"This could come as many working age people might be struggling to regain pre Covid-19 earnings levels."