The recent headline figure of 8.8 per cent earnings growth grabbed media attention and had people questioning whether it was fair on today's workers to keep shelling out for the state pension of an increasingly older population.
Economists warned of the implausibility of the Treasury being able to keep paying out pension windfalls every time earnings growth rises, thanks to the triple lock promise.
They also highlighted the seeming imparity between the rising pension wealth of the retired population and the real earnings power of the youngest workers.
Jon Greer, head of retirement policy at Quilter, says: "Previously, the government has insisted it will uprate the state pension next year in a way that ensures fiscal sustainability, but it has now said it will do it in a way to ensure fairness between the taxpayers of today and tomorrow.
"The fairness point is critical, particularly considering the sacrifices many workers have been forced to make since the start of the pandemic, including forced pay cuts.
"It wouldn’t seem fair to increase state pension incomes by a record-breaking amount as a direct result of people being forced to take a pay cut."
But it is that straightforward, he explains: "It’s often suggested there is a clash between pensioners and taxpayers, but it’s not quite so simple. For starters, the workers of today will be the pensioners of tomorrow, and they will benefit from any increase in the state pension now and any uprating in future years."
Greer would prefer moving to a two-year average figure for earnings growth, for example. However, the government appears to be planning to abandon the triple lock protection for state pensions and remove the promised protection in relation to average earnings.
How the earnings uprating affects the state pension
The triple lock, which has been in place since 2016, is essentially a government promise (or political tool to capture the grey vote) that the basic state pension must rise each year in line with the highest of three possible figures: the rise in prices, the rise in earnings or 2.5 per cent.
Within hours of the media coverage of the 8.8 per cent headline figure, the government said it would be watering down the triple lock from next year, potentially saving the Treasury millions of pounds.
Julian Jessop, economics fellow at the Institute of Economic Affairs, commented: "Each one percentage point increase in earnings growth will add around £900m to annual spending on state pensions, next year and in future years.
"The pay data have been distorted by the pandemic in ways that no-one could have anticipated. Unless the triple lock is changed, this will provide an unintended windfall to pensioners that is increasingly hard to justify."
Initial commentary from Quilter showed the startling cost to the exchequer of maintaining the earnings link: “Assuming earnings growth remains at 8.8 per cent, the triple lock will increase the cost of the state pension by £8bn, a staggering £5.7bn more than if it increased by 2.5 per cent."
