The House of Lords has voted through an amendment, put forward by former pensions minister Baroness Ros Altmann, to alter the UK government’s plan to pause the pensions triple lock for one year.
The planned suspension of the triple lock system – which sets out that pensions rise by average earning growth, inflation, or 2.5%, whichever is highest – is due to an anomaly in earnings figures post-lockdowns as it surged to over 8%.
It is only supposed to take place for the 2022-23 financial year – where it is going to be replaced by a ‘double lock’, discarding the earnings component.
With the government’s plans, the state pension is proposed to rise in line with September’s 3.1% inflation figure in 2022. This means that the basic state pension will rise by £4.25, from £137.60 per week to £141.85 per week; while the flat-rate state pension will rise by £5.55, from £179.60 per week to £185.15 ($255, €220) per week.
But, on 2 November, the House of Lords passed the amendment by 220 votes to 178.
The change, which had support from peers of all parties, requires the government to retain the ‘earnings link’ element of the triple lock but would be allowed to use an ‘underlying’ earnings growth figure which stripped out the effects of the pandemic rather than the 8.3% figure produced by the Office for National Statistics (ONS).
Glimmer of hope
Becky O’Connor, head of pensions and savings at Interactive Investor, said: “Millions of people who depend on the state pension have been offered a faint glimmer of hope this week that their income will continue to adequately cover rising living costs, as the House of Lords backed an amendment to use an alternative earnings figure rather than ditch the earnings element of the triple-lock guarantee completely.
“But the result of the vote will depend on whether it is backed by the House of Commons and if the government can agree on a fair level for next year’s rise, given that the inflation and earnings data that usually form part of the triple lock have been so distorted by the pandemic.”
Emma Byron, managing director at Legal & General Retirement Solutions, added: “This decision will be a welcome reassurance for the millions of people who are dependent on the state pension to meet their income needs, particularly as we see increases in the cost of living placing additional pressure on people’s wallets.”
No prospect of government concession
But not everyone believes pensioners should be too quick to celebrate.
Tom Selby, head of retirement policy at AJ Bell, said that the government “has already banked over £5bn a year in annual savings from the move and so is highly unlikely to budge from its position”.
“If the triple-lock were to be retained, the revised earnings measure would likely need to save the Exchequer almost exactly the same amount of money as scrapping the triple-lock – meaning the net impact on those in receipt of the state pension would in any event be relatively small,” he added.
Steve Webb, LCP partner and former pensions minister, added: “Even though no government likes being defeated in the House of Lords, sometimes they will consider a concession in order to get their legislation through. But on an issue like this, there seems no prospect of a government concession when members of parliament (MPs) are asked to consider the issue again.
“An alternative measure of earnings growth could lead to a multi-billion-pound bill which could cause the chancellor to re-write his budget. By convention, the House of Commons has supremacy when it comes to financial matters and the Lords will come under great pressure to back down if the Commons simply vote down today’s amendment.
“The government seems certain to use its comfortable majority in the Commons to overturn this defeat in the House of Lords. But it is a sign that any attempt to drop the triple lock for more than one year could meet some stiff resistance”.
