Triple lock costs escalate – but reforms would be contentious
In the midst of political party conference season, the pensions industry is divided about whether one key policy should remain in place.
Some are concerned that maintaining the state pension triple lock will cause intergenerational unfairness and threaten the long-term sustainability of the state pension. Others argue that committing to the triple lock is vital for people’s financial planning.
Under lock and key
People value the triple lock. Committing to the triple lock was the most popular pension policy in a survey of 2,000 UK adults, with 36% of people putting it in their top three picks.
Lily Megson, policy director at My Pension Expert, which commissioned the research, said: “It’s certainly telling that the two most popular reforms on the list are committing to the triple lock and protecting pension schemes during times of economic volatility. The cost-of-living crisis has made preparing for retirement more challenging, meaning people will be actively seeking concrete policies aimed at providing support to those approaching or in retirement.”
Patrick Waters, partner at Hymans Robertson agreed, arguing: “Now is not the time to tweak the triple lock. Pensioners, particularly those on low incomes, will need the increased income that the triple lock will provide right now, especially to deal with the high cost of living increases. The state pension is already relatively low when measured against recommended UK minimum living standards and many European countries.”
Politically, it would be unpalatable to end the triple lock. Both Labour and Conservative politicians have refused to be drawn on the future of the policy. Any political party pledging to scrap it is likely to lose support among older voters.
However, the rising cost of the triple lock could prove unsustainable.
Retire the triple lock
The triple lock was always meant to increase the real terms level of basic retirement income; it was not intended to be a permanent solution, pointed out Jamie Jenkins, director of policy and communications at Royal London.
The cost of maintaining the triple lock has escalated (see graph, below). The triple lock currently means that the state pension increases in line with the highest of either: September’s inflation figure, seasonally adjusted pay growth for the three months to July, or 2.5%.
Jenkins said: “Throughout the noughties, the State Pension was slowly devalued relative to rising earnings. The triple lock was introduced in 2010 to address this and to increase the level of the State Pension in real terms over time. However, it was never intended to last forever, and all the projections demonstrate how this would likely become unaffordable over time.”
He concluded: “The time is right for a proper debate about what level of state pension is fair and affordable, and what will replace the triple lock once that level is achieved.”
