The coronavirus crisis is having a devastating effect on millions of people’s personal finances. During the pandemic, 7.5 million workers have been furloughed under the Coronavirus Job Retention Scheme, and nearly two million new claims have been made to Universal Credit.
According to The Daily Telegraph, a Treasury document has estimated the UK’s deficit could reach £337billion this year because of the pandemic.
In comparison, the forecast in March 2020’s budget came in at £55billion.
The publication said measures including Income Tax hikes, a two-year public sector pay freeze and the end of the triple lock on state pensions may be required.
However, a source said the document “does not reflect Government policy”.
State pension UK: The payment increases annually under the triple lock mechanism (Image: GETTY)
In April 2020, the UK state pension increased by 3.9 percent, with this year’s rise being linked to wages growth.
The basic and new state pension rise each year under the triple lock mechanism.
This mechanism was introduced by the Conservative led coalition Government in 2011/12, however for around 30 years since the early 1980s, legislation has required the basic state pension to rise at least in line with prices (RPI).
This means it increases by whichever is the highest out of the average percentage growth in wages (in Great Britain), the percentage growth in prices in the UK as measured by the Consumer Prices Index (CPI), and 2.5 percent.
Andrew Tully, Technical Director at Canada Life has shared his thoughts on the suggestion that the Government may reform the state pension triple lock.
According to Mr Tully, some of the potential replacements for the triple lock are:
A double-lock, raising state pensions by the higher of earnings or inflation
Increasing state pension by a single measure such as earnings or inflation.
Mr Tully said: “Recent above inflation increases to state pensions have been a very welcome boost for the many retirees who are looking to balance household budgets.
“However there has been much debate over recent years about the long-term sustainability of the triple-lock.
“There is no doubt the commitment comes with a huge cost attached, and this is only going to increase as the number of over 65s in the UK increases.
State pension UK: The state pension can be received once a person is state pension age (Image: GETTY)
“According to ONS data, by mid 2043, 15.9 million people in the UK will be of pensionable age.
“There is also a question of fairness, as the triple lock suggests pensioners’ income is growing faster than the rest of the population and spending on state pension has increased by more than other benefits.
“But we need to also recognise the UK state pension is not particularly generous compared to other nations.
“Any changes to the triple lock need to be well thought out and preferably have cross-party support so we have a sustainable long-term policy and people are clear how the state pension remains the bedrock of their retirement income.”
He added: “The decision in the 1980s to only link the state pension to inflation was seen by many as an attack on pensioners and it would be a dramatic change.
“A move to a double lock of inflation or earnings growth would mean state pensions wouldn’t fall behind the cost of living or increases in average earnings, and would mean pensioners income should rise in line with the rest of the economy.
“However the savings for Government in moving to a double-lock are more modest compared to a more fundamental change.”
Steven Cameron, Pensions Director at Aegon commented: “The fall out for the nation’s finances of the coronavirus will be significant, and spending priorities for the future may also be different from the past.
“So it’s only right that the Treasury is beginning to think about what it needs to do to put the country’s finances back on a steady footing.
“It’s no surprise to see policies perceived by some as overly generous for certain groups on the list of expenditures that could be reduced.
“The state pension triple lock and the tax relief granted to higher earners on their pension contributions are two such policies which now look to be in the spotlight.
“We’d encourage the government not to rush through changes and to think about the long-term implications of this type of reform.
“The logistics of changes to pension tax relief for example are fraught with complexity such as how it would be applied to defined benefit pensions.
“And it will be vital that changes which focus on particular age groups such as state pensions are not only fair but perceived as fair by the wider population.”