The government could save £1.5bn in 2022/23 and each year thereafter if it alters the state pension triple lock to be applied over two years rather than one, according to LCP analysis.

There are concerns that Covid-driven fluctuations in average earnings and inflation could lead to a sharp rise in state pension costs in April 2022.

LCP noted that the next uprating, in April 2021, is likely to be 2.5 per cent due to low inflation and a potential decrease in average earnings as many workers faced job insecurity and furloughed wages.

The following state pension increase, in April 2022, could be much larger if average earnings recover at the rate the Office for Budget Responsibility (OBR) has estimated.

The OBR estimated that average earnings could rise by 5 per cent in 2021/22 due to the end of the furlough scheme and people either losing their jobs or returning to full pay.

Due to the current triple lock system, this would result in a 5 per cent rise in the state pension.

LCP suggested that the government considers a two-year application of triple lock calculations, with the firm stating the most likely outcome of this would be a 2.5 per cent increase in both 2021 and 2022, potentially saving the government £1.5bn from 2022/23.

“The basic idea of the triple lock was to make sure that pensioners maintained their real living standards, did not fall behind the working age population and never faced a derisory cash increase,” commented LCP partner and former Pensions Minister, Steve Webb.

“But the triple lock was not designed for times like these. If the Chancellor is keen to keep the spirit of his manifesto commitment but to avoid a surge in the state pension, a ‘two-year triple lock’ could be the answer he favours.”

The Conservative government promised to maintain the state pension triple lock, which rises with whichever is highest out of average earnings growth, inflation or 2.5 per cent, in its December 2019 General Election manifesto.

LCP senior partner, Bob Scott, added: “The whole area of state pension increases has become highly politicised from year-to-year.

"Once the present crisis is over, there is a case for stepping back and asking what the state pension system is trying to achieve and what this implies for the right level of the state pension. The process of annual indexation could then be based on those principles rather than short-term political considerations.”

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