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UK ministers are considering changing the “triple lock” rules and increasing the state pension next year by less than the 8.5% increase in overall income due to concerns about the state of public finances.
Officials said the government was exploring changes to a safeguard that has been in place since 2010, stipulating that annual pension increases would be based on the higher of income growth, consumer price inflation or 2.5%.
The future of the triple lock is one of the most sensitive issues in British politics, but Prime Minister Sunak refused at the weekend to say whether a pledge to keep it would be included in the Conservative manifesto at the next election.
Figures from the Office for National Statistics on Tuesday showed average weekly earnings – the figure usually used to set the earnings component of the triple lockdown – grew at an annual rate of 8.5% between May and January.
But officials now say the government has the option of canceling bonuses paid to NHS staff and civil servants in June to help resolve a pay dispute over pension calculations.
Pension increases will therefore be closer to the 7.8% increase in regular wages excluding bonuses published in Tuesday’s Office for National Statistics figures.
The lower income data will remain a relevant indicator for the triple lockdown as it is higher than July’s consumer price inflation figures of 2.5% and 6.8%.
However, the Treasury remains prepared for significantly higher state pension increases than planned at the March Budget.
No decision has been made yet, but if Work and Pensions Secretary Mel Stride goes ahead with the move it will mean the new state pension will be set at a maximum weekly limit of £219.80 next April. instead of £221.20.
The current maximum rate for 2023-24 is £203.85 per week.
As the work and pensions secretary has leeway to define what “income” means, government insiders say the shift will not technically break the “triple lock” guarantee.
They added that no special legislation would be needed this autumn, unlike 2021’s move to suspend the “triple lockdown” after huge pandemic-related distortions in earnings data.
Ministers and officials said changes to this year’s lockdown were justified because headline indicators were not the best guide to true earnings growth.
The ONS said on Tuesday the indicator was “affected” by “one-off payments” in June and July.
If the government chooses to increase the state pension through “normal” wage increases, hundreds of millions of pounds will be saved every year.
Officials insist this saves money every year because the triple lock has a ratcheting effect that increases in any given year and is exacerbated by future rises.
The DWP had planned that state pensions would cost £134bn in 2024-25 and will have to spend more next year in any case because revenue growth is higher than the OBR expected in March.
The £134bn figure is based on the government’s estimate of a 6.2% increase in state pensions, with an increase of 7.8% still raising costs by more than £2bn next year.
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