State Pension provides essential financial support every month for around 12.6 million people across the UK, including 981,399 Scots. This regular payment is available for those who have reached the UK Government’s eligible retirement age, which is now 66 for both men and women.
On Tuesday, the Department for Work and Pensions (DWP) confirmed that the State Pension triple lock has been temporarily suspended and will not be applied for the 2022/23 financial year over concerns of the potential costs involved.
It comes after the Office for Budget Responsibility (OBR) said in July that pensioners could see their payments rise by as much as 8% due to the guarantee.
The triple-lock guarantees that State Pensions grow in line with whichever is highest out of earnings, inflation or 2.5%.
However, the policy has been temporarily paused because the impact of the coronavirus crisis on wages could have led to an unaffordable rise.
Work and Pensions Secretary, Dr Therese Coffey, told MPs next year's increase will be based on either 2.5% or inflation.
Distortions to wages during the coronavirus crisis could have meant pensioners receive a rise of as much as 8% - an extra £3 billion - while many workers have been dealing with job losses, salary cuts and pay freezes in the tough economy.
Here is a look at why the policy was introduced and what the announcement means for pensioners across the UK.
What is the triple lock?
It is a UK Government guarantee that State Pensions grow in line with whichever is highest out of:
- earnings
- inflation or 2.5%
It was introduced to help give pensioners a decent minimum level of income which would keep pace with growth in workers' earnings.
What has happened?
The wages measure within the triple lock has been temporarily removed until 2023.
Next April’s increase will instead be based on either 2.5% or inflation.
Why has the triple lock rule changed?
Many people have returned to work after previously being furloughed during the coronavirus crisis. Many low-paid jobs have also disappeared and this has created artificial growth in wages.
State Pension s could have increased by as much as 8% at a time when many working people have faced pay cuts or freezes.
Since the triple lock was brought in, the State Pension has increased by 35%, while average earnings have increased by 27%.
Why is the announcement significant?
The triple lock suspension and an increase in National Insurance, which will fund health and social care in England and provide an additional income boost for NHS Scotland services, mean two manifesto commitments have been breached in the same day.
However, it could also be argued that people are living in extraordinary times, against the backdrop of the coronavirus crisis.
Is suspending the triple lock a price worth paying?
Former Liberal Democrat pensions minister Sir Steve Webb, who is now a partner at LCP (Lane Clark & Peacock), said: "The UK State Pension remains relatively low by international standards and many women in particular depend on the state pension for a large part of their income in retirement."
But he added: "To relax the rules on a one-off basis because of the distortions caused by the pandemic but to reinstate the policy for future years strikes the right balance."
Caroline Abrahams, charity director at Age UK, commented: "If suspending the triple lock for a single year helps get a UK Government deal on social care over the line then I believe it's a price worth paying, but only if it really is just a one-off measure and not a sneaky way for ministers to ditch the triple lock altogether."
Helen Morrissey, senior pension and retirement analyst at Hargreaves Lansdown, said: “Such a move will no doubt disappoint pensioners who could have been in line for an inflation busting increase to their state pension of more than 8% under the triple lock.
"However, given many of the working population saw their income fall during the pandemic such a large increase would be unlikely to be popular -any solution needs to be fair to pensioners and taxpayers alike."
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