"With the earnings figures showing a spike because of the pandemic it is understandable that the Government has taken the decision to suspend the triple lock for one year only."
The Government will suspend the triple lock for 2022/23, with the rise instead being the higher of inflation or 2.5%.
The move means pensions will not rise by 8% next April because of a surge in annual wage growth.
With inflation rising it is likely that the eventual increase will be in the 3-4% range, pension consultants LCP estimate. The move is estimateed to save the Treasury around £4bn.
Work and Pensions Secretary Therese Coffey told the Commons: "Tomorrow, I will introduce a Social Security Uprating and Benefits Bill for 2022-23 only.
"It will ensure the basic and new state pensions increase by 2.5% or in line with inflation which is expected to be the higher figure this year and as happened last year it will again set aside the earnings element for 2022-23 before being restored for the remainder of this Parliament."
Coffey said she was taking the measure to stop pensioners “unfairly benefitting from a statistical anomaly,” where the rise in annual earnings this year was a result of millions of people seeing their wages fall 20% while they were on furlough last year.
She added: “We can and will apply the triple lock as usual from next year for the remainder of this Parliament, in line with our manifesto commitment.”
LCP partner and former pensions minister, Steve Webb, commented: “With the earnings figures showing a spike because of the pandemic it is understandable that the Government has taken the decision to suspend the triple lock for one year only. But it is very welcome that they have recommitted themselves to the policy for future years. The UK state pension remains relatively low by international standards and many women in particular depend on the state pension for a large part of their income in retirement. To relax the rules on a one-off basis because of the distortions caused by the pandemic but to reinstate the policy for future years strikes the right balance.”
Andrew Tully, technical director at Canada Life, added: “The Government has been walking a difficult tight rope regarding the triple lock and appears to have finally landed on a decision to remove the earnings-linked guarantee, a move that our research shows only 16% of adults support. By opting for a temporary ‘double lock’ the state pension is now likely to increase by around 2.5%.
“The furlough effect on earnings means that without a change the state pension would have been set to grow by around 8% at a cost of billions of pounds in a time when public finances are increasingly stretched. It’s important to remember that each 1% rise in state pension costs the taxpayer around £850m a year.”
