Where the price of services is tied to the average weekly earnings index, there will be an impact. In our experience, this is most likely to occur in scheme administration service contracts.
There has been much speculation about if and when Rishi Sunak will depart from the Conservative manifesto pledge to retain the triple lock on pensions. Pensioners were spared in this week's statement, but this could come back in the Autumn Budget, along with potential changes to pensions tax relief for workers.
The issue arises from an expected large increase in the index of average weekly earnings in 2021 (potentially 18% has been suggested) as a result of furlough payments at 80% for a significant period of 2020. For the triple lock this has an exaggerated effect because the low 2020 figure is ignored with a minimum 2.5% applying.
For contracts with service providers that are tied to the average weekly earnings index, there may well be a floor so there is no decrease to reflect 2020, and a large increase the following year.
- Check whether you have contracts with pricing tied to an earnings index, and how they might be impacted. Budget accordingly.
- Consider commercial discussions with relevant providers about the potential implications, and options.
There was speculation from the industry that the chancellor would look to either scrap or reform the pensions triple lock to remove the earnings link to mitigate any extraordinary rises that may occur as a result of coronavirus and pay off any debts.