The pensions triple lock faces calls for reform to be fair to all

The pensions triple lock was established to make the state pension fairer and more meaningful. But it costs a lot and there are calls for it to be amended in fairness to all generations. Helen Morrissey of Royal London explains.

 The pensions triple lock

There are arguments that the state pension increases are not fair to the younger generation

There are few more controversial parts of the pension system than the triple lock. Brought in by the Coalition government in 2010 the triple lock promises to safeguard the value of the state pension by guaranteeing it will rise by the higher of inflation, average earnings or 2.5% every year.

The idea behind its introduction was to restore the buying power of the state pension. Prior to its introduction pensioners could receive increases to state pension that were essentially meaningless, sometimes equating to a less than a pound per week. As a result, the triple lock has played a huge role in shoring up pensioner income over the last decade.

Why change or scrap the triple lock?

However, maintaining the triple lock is expensive. In 2018-19 almost £100bn of the approximately £223bn spent on pensions, tax credits and working age welfare was accounted for by the state pension. It’s a situation that will only get worse given the fact we are living longer. With one in three babies born today being expected to live to the age of 100 then that is a lot of people who could be making use of the triple lock for many years to come. Added to this the ratio of retired people to working age people continues to rise which puts further costs pressure on the state pension.

As a result, government has faced repeated calls for its withdrawal or amendment in recent years. In addition to its enormous cost many argue the triple lock is unfair on an intergenerational basis. They say that while it has boosted pensioner incomes nothing on a similar scale has been done to help younger generations who have faced stagnant wage growth, poor property provision and student debt. Indeed recent data from the Office of National Statistics (ONS) shows that pensioner incomes are rising faster on average than people of working age.

This is an argument that has been heightened by the economic uncertainty brought about by the ongoing Covid-19 epidemic. Only this week The Telegraph reported on a confidential Treasury assessment which recommends the triple lock be reformed in a bid to plug the deficit gap.

In addition, think tank The Social Market Foundation (SMF) recently highlighted that huge government deficits will force ministers to reform and reduce state benefits to help repay additional borrowing taken to manage the economic fallout of the epidemic. It argues that any action taken to reduce this debt will need to spread across the generations rather than fall primarily on younger generations as it did in the aftermath of the Financial Crisis.

Rather than scrap the triple lock completely the SMF recommends amending it to become the double lock by doing away with the 2.5% element. This means pensioner incomes will then rise by whatever is the highest of inflation or average earnings. It is a move the SMF estimates could save £20bn over the next five years and ease the burden on working age households shouldering the cost while the economy goes into recovery.

The arguments against changing the triple lock

This is not the first time such a solution has been proposed and it always prompts ferocious debate. Opponents of any change point to the fact that even though the triple lock has increased state pensions the UK still has one of the lowest state pensions in the developed world. Regardless of whether the triple lock remains in place or not pensioners still deserve to receive a fair pension that needs to be properly funded through taxation. Added to this is the grim realisation that after years of decline in the UK pensioner poverty is back on the rise.

For those who argue the triple lock is unfair on an intergenerational basis there are also those that say the triple lock benefits younger generations too. They argue the triple lock safeguards state pension rises for future generations and that if it wasn’t in place younger people would have to save more into their own pension arrangements to avoid poverty when they reach retirement. This of course has the knock-on effect of younger people having to make further financial sacrifices now in order to contribute more to their pensions.

Whether you agree with these views or not the fact also remains that pensioners are far more likely to vote in elections than younger generations. Therefore, it is a brave government who would seek to change the triple lock.

A tough decision

Faced with the mounting bills and urgent need to get the economy up and running again the government will face some tough decisions. Cuts will need to be made and care should be taken that the burden of this should not fall unfairly on any one group’s shoulders as it has in the past.

The decision to amend the triple lock is a complex one and cannot be taken lightly – there are strong arguments for and against it. However, while it does undoubtedly have an important role to play it will need to be considered on its own merits alongside other measures rather than being ring fenced.

Helen Morrissey is pension specialist at Royal London

Further reading: Full state pension opportunity for caring for grandchildren

Comments (0)