Retirees could lose £12,000 each if government scraps state pension promises

THE UK government is expected to scrap its triple-lock state pension promises, in a move that could cost retirees £11,000 each.

Chancellor Rishi Sunak is believed to be considering options to keep state pension spending under control and in line with other benefits.

The triple lock is a pledge which says that the state pension will be increased by whichever is higher out of earnings growth, inflation or 2.5%.

It's an extremely valuable promise and a vote winner that the conservative government pledged to until 2024 stick to in its 2019 manifesto.

But now, extraordinarily high earnings figures mean that the state pension could rise by as much as 8.8%.

If the triple lock stays in force, this means that pensioners could be taking home as much as £746.20 extra each year.

But experts have cautioned that this would not be fair, as the earnings figures have been distorted by the ending of the furlough scheme.

The job retention scheme meant that many people took a pay cut last year while they were out on furlough.

As they return to work, their salary bounces back to its usual pre-pandemic rates, which makes it look like everyone's wages have grown when they haven't.

Since the higher numbers started being reported, the government has been looking at solutions to keep its state pension bill under control.

The Sun broke the news that ministers were considering downgrading the promise to a double lock, where state pensions rose by the higher of inflation or 2.5%.

But there are concerns that inflation levels could also spike, meaning the Treasury is once again stuck with a hefty bill.

Now, a government source has told that the treasury could decide on a single lock - limiting rises to 2.5% over the next year.

The source said that this approach was the most likely option.

This means that pensioners will miss out on both earnings rises and the Consumer Price Index (CPI) inflation measure.

Numbers crunched by LCP suggest that this could cost each pensioner around £11,000 over the course of a retirement.

Under average earning figures released yesterday, pensioners would have seen payments rise by 8.8%, which means an extra £15.80 added to the new state pension.

If current CPI figures of 3% were used, the new state pension would rise by just £5.40 per week.

And if the government chooses to limit the rise to just 2.5% retirees would get just £4.50 per week more.

That last figure is £11.30 less than under the triple lock, which works out at £587.60 per year.

Over a twenty-year retirement LCP estimates that there is a difference of over £11,000 per pensioner.

Steve Webb, partner at consultants LCP said: “A much lower increase next April would mean a permanently lower pension... Small differences can add up to huge sums”.

The move is likely to be extremely unpopular with pensioners and those approaching retirement as the government will be going back on its promises.

But industry experts have been saying that the triple-lock is unsustainable for some years now. In fact, increasing the state pension by earnings figures would cost the government a whopping £8billion.

Sticking to a 2.5% raise keeps the treasury bill down to £2.5million saving the government £5.5billion in a year.

Tom Selby, head of retirement policy at AJ Bell, said: "An 8% rise will put huge pressure on the public finances at a time when the Treasury is already staring down a fiscal black hole.