Boris Johnson Has ‘No Plans’ to Scrap Key U.K. Pension Pledge

(Bloomberg) -- British Prime Minister Boris Johnson has “no plans” to abolish a politically sensitive election pledge he made to the U.K.’s pensioners, despite fears among government officials that the policy could be at risk in the pandemic fallout.

Officials are aware that the pensions “triple lock,” promised by the last three Conservative prime ministers as a guarantee that retirement incomes will keep rising, may have to be reviewed, a person familiar with the matter said.

Johnson’s spokesman played down the idea that a policy change was being lined up. “These are unique and challenging economic circumstances and we cannot hide from that. There are no plans to abolish the triple lock and we will always stand by pensioners,” the spokesman said.

A Treasury official also insisted no decision had been taken, and rejected suggestions that Chancellor of the Exchequer Rishi Sunak was preparing to drop the promise.

But the virus has left a question mark over the guarantee to raise the state pension every year by the annual growth in average earnings, inflation, or 2.5% -- whichever is highest.

That stems from the effect, first highlighted a week ago, that furloughing millions of workers and then returning them to work is expected to have on earnings.

The Office for Budget Responsibility currently expects wages to rise 18.3% in 2021 -- a jump that threatens to dramatically increase the cost of a policy which already costs the government about 100 billion pounds ($126 billion) a year.

But the actual outcome may be more benign for Sunak. When the OBR released its estimate in April, it was unclear how the government’s furlough program would be treated by statisticians. Since then, the Office for National Statistics has confirmed that those payments will be treated as earnings, meaning both 2020’s expected fall in earnings and the following year’s rise are likely to be much smaller.

The pensions rise in question isn’t due until April 2022, so ministers have some time before they have to decide. Much also depends on how the figures turn out. The Bank of England’s illustrative scenario for earnings sees them falling 2% in 2020 and then rising 4% in 2021, an increase that isn’t far off the minimum required under the triple lock.

The Treasury said in a statement: “Announcements on tax and pension policy are for budgets. The government is committed to supporting pensioners.”

©2020 Bloomberg L.P.

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