State pension payments are increasing 4.1% in April thanks to the triple lock (Image: Getty)
State pensioners may continue to enjoy sizeable increases to their payments as the will likely stay in place for one stark reason, an expert has argued. And that’s despite the idea of means testing becoming more widely discussed.
The ensures payments rise each April in line with the highest of 2.5%, the rise in average earnings or inflation.
Chris Ball, managing partner at wealth firm , said it’s unlikely to be changed as it would be a hugely unpopular move for the Government to bring about.
Labour has committed to retaining the for the duration of this Parliament while the Conservatives called last year for a ‘ plus’, with the personal allowance for pensioners also rising in line with the metric, to ensure the is never subject to income tax.
Mr Ball said: “It is widely regarded that the is an unsustainable measure applied to the amount, yet both parties have kept it in place while in power.
“The main reason for this is likely to be that as a high proportion of voters are people in and around retirement age, removing the would be political suicide. Inflation may ramp up pressure on the , but I don’t feel the Government would remove it.”
This April, payments will go up 4.1%, based on the average earnings measure of the . Last year, payments rose 8.5% in line with earnings, while the year before there was a record 10.1% increase thanks to soaring inflation.
David Piltz, CEO at Employee Benefits & HR Consulting Division in the UK, said it’s hard to predict if inflation or earnings will be the key for the 2026 increase. He also said it remains uncertain exactly when the policy will become unsustainable.
He explained: “If inflation remains high over the next few years, this does not necessarily make the unaffordable in isolation, if GDP growth keeps pace.
“Conversely, in periods of very low inflation, the 2.5% underpin on increases can mean that the grows significantly in real terms.”
Mr Piltz further pointed out that one concern with the is that over time it delivers increases above inflation and earnings growth.
He said: “The method of growth of the means that it tends to increase (on average) at a rate higher than price inflation or salary inflation due to a ratcheting effect arising from taking the highest measure each year, together with the 2.5% minimum increase. As a result, it is outpacing both price inflation and salary inflation over the long term.
“If the Government decide that the is unsustainable, then the difficult question will be how to remove it and what should replace it.”
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One suggestion for keeping the affordable is to means-test some aspects of the policy. Conservative Party leader Kemi Badenoch said she would consider the idea of means testing, when asked about the in a recent LBC interview.
But her fellow Tory MPs in Parliament that she was not referring to actually means-testing the itself.
Mr Ball said introducing means testing would be challenging given the way people pay National Insurance contributions to build up how much they are eligible for.
He said: “The current payments to pensioners are not funded through a build up of wealth or contributions gone by – they are funded each year by current years tax and National Insurance contributions intake.
“A proportion of that intake is from voluntary contributions. If the became means tested, there would be far fewer people making those voluntary contributions to assist with funding the current pension liability as they would not consider it worth while.
“With the being dependent on National Insurance Contributions, i.e 35 years of National Insurance payments required for maximum and no due if you have less than 10 years contributions, there could potentially be legal repercussions as people have effectively paid for something which they have been promised and then it would have been reduced or taken away.”
You typically need 35 years of National Insurance contributions to get the full new , currently £221.20 a week, and 30 years of contributions to get the full basic amount, which stands at £169.50 a week.