The state pension triple lock could go if inflation turns negative, according to former pensions minister
A slump in inflation could pave the way for the abolition of the state pension triple lock, a former pensions minister has warned.
Steve Webb, partner at pension consultants Lane, Clark and Peacock, says Government borrowing is set to reach record levels in the next year. Chancellor Rishi Sunak will be looking at ways to save money.
The state pension costs around £100 billion per year, and the Chancellor could use a period of negative inflation to either freeze it or justify a smaller increase.
Under the state pension triple lock, the UK basic and new state pension increases by either 2.5%, average wage growth or by prices growth as measured by the consumer price index – whichever is highest. This process is known as uprating.
It was introduced in 2011 to ensure that the average pensioner's household income rose each year regardless of their financial situation.
CPI inflation has already fallen sharply, from 1.5% in the year to March 2020 to 0.8% in April 2020.
A further fall is expected when the inflation figure for May 2020 is published later this week.
LCP says unless there is a strong recovery in the economy inflation could be negative in September, and could even fall below -2%.
LCP says that with prices falling and depressed wages as a result of furloughed workers, the Government may find it easier to justify watering down the triple lock.
Each percentage point shaved off the state pension uprating would save the Government just over £1 billion per year, LCP says.
Webb says: “The 2017 Conservative manifesto floated watering down the triple lock, and there can be little doubt that the Treasury would like to see this commitment go.
“From the Government’s point of view, a period of negative inflation when prices are actually falling would be the ideal time to justify not sticking to the 2.5% floor implied by the triple lock. Once the rule had been broken once, it would be more likely to be abolished for future upratings.”
Boris John recently confirmed the Government would not be increasing the pension triple lock.
At a recent Commons Liaison committee Conservative Party MP Mel Stride asked the Prime Minister if he would honour manifesto commitments relating to the retirement promise.
Johnson responded: “We are going to meet all of our manifesto commitments. Unless I specifically tell you otherwise."
There have been calls to scrap the state pension triple lock system to help fund the cost to the Government of the coronavirus pandemic.
Think tank the Social Market Foundation (SMF) says the bill to tackle the epidemic must be shared fairly between retirees and those of working age.
It says that replacing the triple lock with a 'double lock' that removed the 2.5% element could save £20 billion over the next five years.