The Work and Pensions Committee has called for the state pension triple lock to be scrapped, in an attempt to ameliorate an economy "skewed in favour of baby boomers and against millennials".
An inquiry into intergenerational fairness was launched in January this year to explore the discrepancies between millennials and baby boomers with regard to welfare, housing and pension entitlements.
One of the aims of the inquiry was to look at the long-term viability of the triple lock, which was introduced in 2012. The triple lock means that the state pension rises annually by either earnings growth, inflation or 2.5 per cent, depending on which is highest.
If the job of the triple lock was to restore the value of the state pension to its 1980 level, when the earnings link was scrapped, that task is arguably complete
Tom Selby, AJ Bell
On Sunday, the select committee called for it to be replaced by a smoothed earnings link.
'Inherently unsustainable'
According to the committee, the triple lock has “succeeded in increasing the value of the headline state pension relative to average earnings”, but is “inherently unsustainable”.
The committee said that “accelerated increases in the state pension age, an alternative means of making the state pension more fiscally sustainable, would disproportionately affect the young”.
It also called for a review of universal pensioner benefits, including the winter fuel payment.
Given the reductions in pensioner poverty seen over recent years, the select committee said that “there is no case for future governments to contemplate any increase in the value of range of universal pensioner benefits”.
Back to 1980 levels
Tom Selby, senior analyst at AJ Bell, said the state pension's value has increased back to previous levels.
Source: Eurostat and International Longevity Centre - UK
“If the job of the triple lock was to restore the value of the state pension to its 1980 level, when the earnings link was scrapped, that task is arguably complete,” Selby said.
He noted that the basic state pension was worth 26 per cent of average earnings in 1980, “and the single-tier state pension will be worth almost exactly this by 2020”.
Selby said: "Ultimately, it’s difficult to justify increasing pensioner income by more than the average earnings of the working population, particularly when we know the baby boomers will, on average, have far bigger pensions than the next generation."
However, he also pointed to the political dynamite of removing the triple lock: “Politicians will be wary of ditching the triple lock for fear of angering the grey vote ahead of the next general election, whenever that may be.”
Taking away the lollipops from baby boomers
Ashley Seager, co-founder of charity the Intergenerational Foundation, said that the triple lock is “massively unaffordable” and universal pensioner benefits should be limited to those who need them most.
However, he said, “most pensioners are very wealthy, particularly those who are on golden final salary pensions and have a house that they paid off years ago which has quadrupled in value”.
In contrast, he noted that many young people do not have final salary pension schemes, are burdened with student debt, and struggle to get on the property ladder.
“This is grossly unfair on every level,” he said, adding that he was surprised that "young people aren’t marching on the streets” to protest against it.
Seager said that although greater importance is being placed on intergenerational fairness, there is still a lot to be done.
“The problem is that it basically involves taking away the lollipops that the older generation has got used to… the change is actually coming too slowly.”
Welfare state needs to evolve
Ben Franklin, head of economics of ageing at think tank the International Longevity Centre - UK, said that scrapping the triple lock means potentially penalising future generations.
Intergenerational fairness debate heats up as inquiry is launched
An inquiry into intergenerational fairness, aiming to bring more clarity to the often-heated debate about who gets what from the state and employers, has been welcomed by experts.
In the future, he said, people may not have sufficient private savings to provision them for an adequate retirement income.
Franklin said a more proactive welfare state may be needed to support jobs, but he noted that may require some substantial policy changes.
He said the creation of an economy that can support a welfare state for an ageing demographic will be crucial.
“Supporting innovation and productivity is going to be a key role for the state going forward if we’re going to be able to afford an ageing welfare state and an ageing population.”
