The pensions triple lock needs urgent reform to stop distortions from coronavirus handing a pair of bumper payouts to retired households while the workers paying for it suffer, former pensions ministers have warned.
If wages come back strongly next year, with those on furlough seeing their pay rise from 80pc of its normal level back to 100pc, pensioners would pocket a much bigger rise.
Downing Street maintains that the triple lock will not be scrapped, sticking with the Conservative manifesto promise. However, former pensions minister Steve Webb said a review was inevitable.
“There is an Act of Parliament that says you have to increase it by average earnings, which will be a silly number – it could be 10pc or 8pc. It could lead to a multi-billion pound bill, which would look completely out of place if wages are just returning to where they were,” said Sir Steve, who is now a partner at PCP.
“It would look really weird and it was never the intention of the triple lock.”
He suggested a 1.5pc rise instead of 2.5pc this year, and potentially changing the wage link to the average rise over two years instead of one.
“If you have a dip in earnings with the furlough and then a surge back – you could say, ‘over the next two years we think earnings are going to rise by, say, 3pc, so we will apply the triple lock over two years instead of one year’,” Sir Steve said.
However, this could lead to the accusation that the Conservatives have broken their election manifesto pledge to keep the triple lock.
Angela Eagle, a former Labour employment minister and now a member of the Treasury Select Committee, said the combination of promises to keep the triple lock on pensions and to avoid hiking any of the big taxes was “incoherent” economically.
“I don’t see how both of those rules can survive, and if they do then it just explodes the borrowing issues,” she said.
Ros Altmann, who served as pensions minister in 2015 and 2016, said the triple lock gave most protection to younger and better-off pensioners, missing out the pension credit top up element.
“The 2.5pc element was introduced in 2011 to give a controllable way of improving the state pension over time. But pensioner poverty rates have declined, so the rationale seems to have become entirely political,” she said.
“It is vital to protect pensioners and I would hate to see any return to the widespread pensioner poverty that we have worked hard to overcome. However, with the introduction of the new state pension, and in light of the latest crisis, it seems time to reconsider.”
Campaigners at Age UK warned there was still a need to boost payouts.
“When commentators talk about the case for pausing or abolishing the triple lock they need to remember how far we still have to go before every older person receives enough through their State Pension to live decently in retirement,” said Caroline Abrahams, its charity director.
“Too many pensioners still have to worry about how on earth they would manage if an unexpected big bill came along – a situation the pandemic has done nothing to improve. The underlying reasons for retaining the triple lock remain as strong therefore as they did before the Coronavirus hit us.”