The Conservative Party is currently divided over the future of the pension triple lock, with many MPs urging Chancellor Rishi Sunak to make changes. The triple lock dictates that the state pension increases with the highest of the following: Rising cost of living seen in the Consumer Prices Index (CPI) measure of inflation, increasing average wages, or 2.5 percent. Due to the huge dip in average earnings as a result of the pandemic in 2019, the back end of the health crisis has now led to a sudden spike in employment and average earnings.
This means the state pension could increase by eight percent – but many feel this is unfair given the younger generation were hardest hit by the pandemic.
Still, many with pension pots feel the triple lock should be preserved, given that the UK has statistically one of the least generous state pensions in Europe.
Simon Lambert explained on the This is Money podcast in July: “One of the things that is mentioned repeatedly is that Britain has one of the lowest pensions in Europe and among developed countries.”
Analysis using The Organisation for Economic Co-operation and Development (OECD) data shows the UK’s pension is less generous compared to other countries in Europe.
For example, UK pensioners receive 28 percent of the average working wage when they retire, whereas pensioners in Luxembourg and Austria receive 90 percent of the average working wage.
When looking at the net replacement rate, which measures how effectively a pension system provides a retirement income to replace earnings, the UK also ranked lower than all thirteen neighbouring European countries.
Mr Lambert continued: “The UK looks pretty bloody awful by these figures. The OECD average is 49 percent. So you can see why people complain.
“Some countries like Italy get 79 percent. There are problems with these figures though, because they only take into account the state pension.
“In quite a few of these countries, work pensions and state pensions are bundled into the same system. So ours looks really bad because some of the others include employment pensions.
He said: “The triple lock cannot be maintained as it has been applied over the past ten years or so.
“Historically the Government has used average earnings in the three months up until July as the figure to use for triple lock.
“Because of what’s happened with the lockdowns and how that affected earnings last year and the subsequent bounce back this year, we are almost certainly going to see a big spike for that average earnings figure.
“A lot of economists are expecting that figure to stand at about eight percent, which could cost the Chancellor anywhere up to around £3billion compared to what they thought they were going to spend.”
Published at Wed, 25 Aug 2021 09:14:00 +0000