Triple pension lockdown on the verge of scrap as Rishi Sunak warns of £ 4bn black hole | United Kingdom | New UK News

The Institute for Government (IfG) has urged the Chancellor to drop his party’s commitment to the manifesto to avoid a £ 4bn payment. The government’s commitment to “triple lockdown” commits ministers to raising the pension to the highest income, inflation, or 2.5%.

Following the coronavirus pandemic, wage growth could reach nearly 9% this year.

In the report, IfG chief economist Gemma Tetlow said: “Departing from the perverse triple lockdown outcome would, technically, be a violation of the manifesto.

“However, choosing to do so and increasing pensions to match the ‘underlying’ salary increases would maintain the spirit of commitment, give a more reasonable result and save the Treasury £ 4bn. per year.”

Ms Tetlow went on to explain that tax increases were “probably necessary to cover ongoing costs” due to the pandemic if Mr Sunak did not want to add to the government’s huge debt.

The Chancellor is reportedly considering dropping the pledge this year after the pandemic left the Treasury with a huge bill.

There were reports that Mr. Sunak was considering removing the element of wage growth.

Inflation is expected to reach around three percent, which would push the price of the pension increase down to around £ 2.6 billion.

But the IfG report warned: “Average profit growth in the three months to June 2021 was 8.8%.

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“If state pensions were to increase by this amount, they would cost around £ 4 billion more in 2025/26 than forecast in March.

“However, this figure for profit growth is skewed by ‘base effects’.

“In 2020, the average salary was unusually low as many workers were on leave and only received 80% of their salary.

“It is also skewed by ‘composition effects’: people who have lost their jobs since 2020 are disproportionately in low-paying jobs, which raises the average salary of those who are still employed.

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The Office for National Statistics has estimated that the “real” growth in earnings, excluding these effects, is between 3.5% and 5%.

“If the government sticks to the letter of the triple lockdown, pensions would increase by around 8.8% next April.

“That would leave pensions in 2022/23 worth 11.5% more in terms of cash than in 2020/21.

“If the state pension had instead increased according to the underlying average earnings during this period, it would have increased by only seven percent.”

Prior to 2011, the state pension increased in line with the retail price index’s measure of inflation, which was consistently lower than annual income increases or 2.5%.

Recent years – in which income growth has been extremely weak – have seen a triple foreclosure increase the value of the state pension relative to both average incomes and prices.

Retirees have seen their incomes grow almost double the rate of the average worker in recent years.

Those who turn 66 this year would earn £ 11,866 by the time they turn 85 if the underlying figure is used – assuming the state pension would then continue to increase by 2.5% per year as d ‘habit.

Whatever decision the Chancellor takes, smoothing is likely to be a very controversial topic in the months to come.

Not only will removing the triple lockdown break a 2019 Tory manifesto pledge, it is also likely to hurt some of society’s most vulnerable members, as well as pressurize government plans to economically recover from the crisis. coronavirus crisis.

Ian Browne of Quilter, an investment group, said: “The latest data suggests the Chancellor’s worst fears will come true and he will either have to spend billions more on state pensions next year and forever. , either make a difficult political decision to adjust the triple lock or remove it entirely.

Steven Cameron, of pension provider Aegon, said: “If this trend continues, we could even hit double-digit numbers, which means if the triple locking isn’t rigged in some way or a other, state pensions could increase by more than 10%.