The UK government announced on 7 September a suspension to the state pension triple lock for 2022/23. This means the new and basic state pension will increase by 2.5% or in line with inflation.
Under the triple lock rules, the state pension is increased by the higher of earnings growth, price inflation (being the Consumer Price Index (CPI)) or 2.5% per year. During the Covid-19 pandemic, many people were earning less than usual as they were furloughed. As people came off furlough and returned to full pay, this resulted in a spike in UK earnings growth. This announcement was, therefore, unsurprising to many in the pensions industry who had argued that the current triple lock rules were unsustainable.
According to the Office for National Statistics, growth in the average total pay was 8.8% and regular pay (excluding bonuses) was 7.4% in the three months to June 2021. The UK has seen a record sharp rise in CPI in the year to August as well, up from the Bank of England’s target of 2% in July to 3.2%. As a result, the triple lock is expected to rise by price inflation, exceeding the 2.5% threshold.
The government did, however, confirm in its announcement that the suspension was only temporary with the triple lock being restored for the remainder of this Parliament, which ends in 2024.