DWP introduces bill to ensure payments for older people can be increased next year

‘It is only right… that we also ensure pensioners can see their incomes protected as we build back better,’ said Work and Pensions Secretary Thérèse Coffey

A freeze on state pensions will be avoided as the Department for Work and Pensions (DWP) introduces a bill to ensure the incomes of older people can increase next year.

The impact of coronavirus on the economy and earnings risked leaving pensioners without an uplift in April 2021 but Work and Pensions Secretary Thérèse Coffey said it is “only right” that their incomes are protected.

“The Government has worked hard to protect all age groups during the pandemic, strengthening the welfare safety net, introducing furlough and income protection schemes, as well as supporting those who have lost their jobs back into work,” said Ms Coffey.

Former pensions minister Baroness Ros Altmann welcomed the move, saying that she was “delighted that the Government has acted to ensure that state pension increases will be protected in the current emergency environment”. However other pension experts warned the move could be “intergenerationally unfair” because the working age population is facing job losses and pay cuts.

State pensions rise each year under the “triple lock” mechanism, which ensures an increase of whichever is the highest of earnings growth, price inflation or 2.5 per cent. However, legislation states that pensions can only increase if there has been a rise in average earnings in the relevant period the year before.

According to the DWP, average earnings are expected to show no growth between May-July 2019 and May-July 2020 due to the “challenging economic circumstances” the country has faced during the Covid-19 pandemic.

The Office for National Statistics estimates the annual growth in employee total pay between May and July is -1 per cent.

The Social Security (Up-Rating of Benefits) Bill, a technical bill which will be introduced to the House of Commons on 23 September, means the state pension can be uplifted in April even without earnings growth. The DWP said this allowed the Government to fulfill its pledge to keep the triple lock, which was included in the Conservatives’ 2019 election manifesto.

Baroness Altmann told i: “This is a technical measure that repeats the actions taken in the 2008-09 financial crisis, to ensure state benefits are able to rise if considered necessary to protect the purchasing power of pensioner incomes.

“In particular, Pension Credit – relied upon by the poorest pensioners – is only guaranteed to rise in line with earnings. As average earnings are likely to fall in the current period, the poorest pensioners would be vulnerable to greater poverty,” she added.

The triple lock policy means the state pension increases every year (Photo: PA)

What does the bill mean for older people?

The bill is only a technicality and the Government’s intention “has always been for the state pension to go up” each year, said Daniela Silcock, head of policy research at the Pensions Policy Institute.

“It would be a fairly drastic move for the Government to not increase the state pension,” she told i.

Ms Silcock predicted that, as the situation stands, pensions would to go up by 2.5 per cent in April 2021, which is likely to be the highest of both earnings and price inflation. This year the state pension went up by 3.9 per cent – nearly £350 a year.

“But even more contentious is the fact that once the furlough scheme ends later this year, and if wages recover, in its current form the triple lock will provide an artificially large boost to state pension income in 2022/23 when we could be in the clasp of a deep recession and when the Government is struggling to control the deficit.”

He said the “triple lock will no longer provide a link between the real economy and increases in the state pension”.

There have been numerous reports that the triple lock could be under threat in the future because it may become too costly for the Government to afford following the pandemic.

However the Treasury has repeatedly said there are no plans to abolish the triple lock and that the Government will look after pensioners.