For some people, the state pension is all they have to look forward to as income in later life. For others it’s a helpful top up to their workplace pension, savings income, etc. Either way, it’s an important issue both for those in receipt of it and the government that has to finance it.

Under a manifesto promise, the current government has pledged to increase pensions in line with inflation, measured in the highest of three ways. One of these is wage rate inflation, which is currently much higher than the others as a quirk of the runout of the pandemic. Forecasts are anything between 5 and 8%. At the upper end of that range it would cost the Treasury around £3bn more than their forecasts, a staggering amount for them to have to find when they are working out how to fund their covid support programmes.

So does the government stick with its manifesto pledge and find other ways of financing its recent spending or dispense with the ‘triple lock’ as the inflation promise is generally known? It may be a one-year only blip, with the increase returning to ‘normal’ levels next year. If the government could be sure it is, I think they would opt to retain the system, rather than risk the political fallout from going back on their promise.

A ‘hot potato’ for the government

It’s a commitment that divides public opinion. Pensioners argue it’s crucial to them coping with rising costs and point out the UK state pension is amongst the least generous in Europe. I’m surprised at that statistic, but apparently it’s true. Opponents of the triple lock argue the majority of people drawing state pension have other incomes and don’t need the security of the inflation guarantee. Goodness knows who is right, but it is a real ‘hot potato’ for the government.

The cost of providing state pensions is clearly something that troubles our politicians, enough for the current government to offer the guarantee as part of its strategy for winning the Election. Successive governments have looked at ways of reducing the annual outlay, including equalisation of pension ages for men and women, extending the qualifying age from 65 to 66 (and soon 67) and increasing the number of years you need to pay in before you qualify for a full pension.

It’s a ‘hot potato’, that’s for sure, and one that will burn the hands of those trying to catch it for generations to come.