The safeguard guarantees that the payout will increase in line with inflation, earnings or 2.5 percent – whichever is higher. Salaries rose 7.3 percent in the three months to May and 8.6 percent annually as people return to work after the pandemic, say official figures. A 7.3 percent uprating would push the basic state pension up from £137.60 a week to £147.65.
Younger pensioners claiming the flat-rate payout will go from £179.60 a week (£9,339 a year) to £192.70.
But the bill for the overall rise will be an additional £6.7billion in 2022/23. This is £4.4billion more than if the pension increased by consumer price inflation or 2.5 percent only.
But experts warn the total cost could be even higher as the Office for Budget Responsibility has forecast that earnings growth could rise to eight percent in the next two months.
Tom Selby, senior analyst at AJ Bell, said it was “entirely plausible” average earnings could spike as more parts of the economy open up.
He said this could increase the value of the flat-rate payout by £746.20 to more than £10,000 a year.
Mr Selby said: “Chancellor Rishi Sunak faces being caught between the devil and the deep blue sea on the state pension triple lock.
“While the policy could add billions of pounds to public spending at a time of severe fiscal pressure, unpicking it would break a manifesto commitment.”
However, to reduce the cost, and maintain a link to real wages, Mr Sunak could temporarily tweak the safeguard by using a three-year rolling average figure for wage growth.
This would uprate the pension by 3.4 percent in 2022/23, said figures from Jon Greer, head of retirement policy at Quilter.
This would save the Government £3.5billion next year.
Mr Greer said: “Real wages aren’t really growing by 7.3 percent when you remove the distortionary impact of Covid. The Chancellor has said there must be fairness between taxpayers and pensioners in setting the state pension increase, and one way is by basing the earnings-growth element on a three-year rolling average figure.
“State pensions will still increase by a generous 3.4 percent next year, but the Exchequer will save £3.5billion and preserve some intergenerational fairness. Debates around the triple lock often get linked to the overall level of the state pension but that is another matter. Tweaking the triple lock doesn’t mean a state pension cut.
“This is about how it maintains its value fairly over time.”
Former pensions minister Sir Steve Webb said Mr Sunak could still “recommit” to building up the value of the pension long-term.
But an adjusted average earnings figure for the April 2022 uprating could get him “off the hook” this time round. Sir Steve, now at consultants Lane Clark & Peacock, said the triple lock “was not designed for a period when average earnings are as volatile as present”.
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