Triple lock 'a ticking time bomb' for Rishi Sunak

The triple lock guarantees the basic state pension will rise in line with the highest of earnings, inflation or 2.5%.

For next April's increase, the inflation figure will be measured by the Consumer Price iIndex in the year to September 2021, which will be published in October. The earnings figure will be measured by average weekly earnings (potentially including or excluding bonuses) in the three months to July 2021 compared with a year earlier.

If the triple lock increased by the earnings growth figure of 8.8% published on Tuesday morning (from April to June, including bonuses) then the state pension would rise from £179.60 to £195.40 a week, or £10,160 per year, Lane Clark & Peacock (LCP) said. The old basic state pension would jump from £137.60 to £149.70 per week.

AJ Bell head of retirement policy Tom Selby said: "The triple lock is facing an existential threat because the high level of earnings growth in the economy is set to push the state pension up by around 8% next year.

"An 8% rise will put huge pressure on the public finances at a time when the Treasury is already staring down a fiscal black hole."

LCP partner and former pensions minister Sir Steve Webb added: "Average earnings are well above their level a year ago, partly because some furloughed workers are back on full pay and also because some lower paid jobs have been lost altogether. These figures pile pressure on the chancellor as he will want to stick to his triple lock policy but not pay a huge increase to pensioners, especially at a time when many working age benefits are about to be cut by £20 per week.

"This is ultimately a political judgment for the government, but the most likely option remains to look for a measure of earnings growth which strips out the effect of the pandemic. This could save the chancellor several billion pounds a year whilst still allowing him to claim he had kept to the ‘spirit' of the triple lock promise."

Quilter pensions expert Ian Browne called the triple lock "a ticking time bomb" for the chancellor. He also pointed out that if the state pension increased by the latest earnings figure of 8.8% ,then it would increase the cost for the government by £8bn - some £5.7bn more than if it rose in line with inflation.

"Time is quickly running out for Sunak to make one of the most contentious spending decisions of a generation," he said. "Does he risk jeopardising the grey vote by tweaking or scrapping the lock to save a pretty penny, or does he hold fast on the lock and give pensioners a seismic boost to their income despite the controversial cost?

"Sunak will have to decide whether to cut the red wire or the blue wire, but so far he has just stalled."