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State pension triple lock explained as 5.5% is ‘locked in’

The triple lock is a Government policy to ensure the state pension rises each year, in line with one of three elements. Payments must increase each April, by either 2.5 percent, the rate of earnings growth or the rate of inflation, whichever is highest.

The policy was suspended last year as the growth in earnings was disproportionate given the impact of the coronavirus pandemic, with an increase of just 3.1 percent.

Now wage growth figures from the ONS have shown average workers’ pay has increased from May to July, by 5.2 percent and 5.5 percent for those with bonuses.

However, the soaring rate of inflation is more likely to determine the increase in the state pension, which recently dipped at 9.9 percent after reaching 10.1 percent in July.

Kate Smith, Head of Pensions at Aegon, said: “The Government has previously committed to reinstating the triple lock after suspending the earnings element for 2022 to 23 due to distortions caused by the Covid-19 pandemic.

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“With inflation into double-digits, average earnings (total pay) of 5.5 percent isn’t expected to be the deciding factor in next April’s state pension increase.

“The state pension is likely to increase by around double this at over 10 percent, confirmed in September’s inflation figure published next month.

“While Prime Minister Truss committed to reinstating the triple lock in the immediate term during her leadership campaign, questions will remain over its affordability and whether the triple lock will survive in its existing form in the manifestos of all parties ahead of the next General Election.”

The Consumer Prices Index for the year, up to September, is usually the figure that applies for the state pension triple lock, which will be announced in October.

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The new state pension is currently at £185.15 per week while the basic state pension is £141.85.

If inflation hits 10 percent again, the new state pension would rise to £203.85 weekly, and the basic state pension would go up to £156.20 per week.

The Bank of England predicts inflation will reach 13 percent in October and if inflation remains high going into next year, the next state pension increase could also be sizable.

A survey by Canada Life found 55 percent of adults back keeping the triple lock as things stand.

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That breaks down to 78 percent approval among over-55s, 44 percent among 35 to 54-year-olds and 33 percent amongst 18 to 34-year-olds.

ONS figures show the number of people aged 65 years and over in employment has increased by a record 173,000 in the three months to June 2022.

The group said there are nearly 1.5 million people aged 65 years and over in employment which is a new record.

Researchers said a “record increase” in the number of older workers between April and June 2022 was driven by rises in people taking up part-time work.

Jon Greer, Head of Retirement Policy at Quilter, warned the state pension may not be a feasible policy in coming years.

He said: “Truss will struggle to balance the books if she wants to stay true to the Tory manifesto of keeping the triple lock in years to come in light of soaring inflation and her desire to not add any other taxes and slash existing ones.

“This ultimately will throw into question how the incoming social care reforms will also be funded. Something may have to give.

“Pensioners up and down the country will be hoping that it doesn’t start with the triple lock.”

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