Prime Minister Andy Burnham is expected to suggest that the triple lock state pension does not work in its current form when he speaks at Labour conference later today.
The policy, which ensures that state pension rises by whichever is highest: inflation, average earnings growth, or 2.5 per cent, has become increasingly controversial since George Osborne introduced it in 2011.
Critics say it is unaffordable in a time of ballooning state spending and high debt. Supporters say it protects poorer pensioners – and that Britain’s state pension is still less generous than those in European countries like France and Germany.
So, is it time to scrap the state pension triple lock? The i Paper’s experts – , Chief Political Commentator, , Deputy Money Editor, , Housing and Society Correspondent and , Columnist – give their insights below.
The triple lock was introduced when Britain’s economy was in the doldrums following the 2008 economic crisis. We were in a recession. Interest rates were low. Inflation was low. There was a real danger that pensioners would see their incomes dissolved. David Cameron and George Osborne were arguably right to act to ensure that didn’t happen.
However, times have changed.
Today, the triple lock acts as a ratchet mechanism on the state pension because it links the amount of money pensioners get to whatever is highest of three measures, including inflation. Inflation, as we all know, has been running incredibly hot in recent years and remains volatile.
Politicians and economists are now accepting that we can no longer afford the triple lock, which means older people are guaranteed a pay rise when younger generations are not.
So, when you consider the context in which the triple lock now exists – an economy where inflation is higher than it should be, interest rates are no longer nailed to the floor and, crucially, where there is enormous national debt and very little headroom for the Government – it is almost definitely time to ditch the triple lock. That might not mean scrapping it entirely, but something has to give. A double lock, for instance, which links pensioners’ incomes to wages as well as a minimum increase each year, would do the job.
There are two huge problems with scrapping the triple lock state pension. One is that ending it wouldn’t actually help much. And the other is that it would stir up the already serious, and destructive, tensions between the young and old.
The first is simple maths. The pension bill is certainly huge, around £154bn this year, but national insurance contributions, which are supposed to pay for it, brought in over £200bn last year. It is true that the IFS reckons that the annual bill is £12bn to £16bn higher than it would have been had the pension been uprated since 2011 by earnings or inflation alone. But that controversial increase in employers’ NICs that Rachel Reeves brought in more than pays for it – it is bringing in around an extra £25bn a year.
Besides, in the context of the Government’s deficit – which the markets expect to be between £125bn and £135bn – while an extra £12bn to 16bn a year is certainly material, the underlying problem is vastly bigger.
The second danger, were this Government, or indeed any government, to end the triple lock is the impact on the relationship between the young and old. Older people, who have paid high rates of tax during their working lives, faced much higher unemployment in their working lives than now. Aside from a small minority, they did not have the benefit of going to university and feel they have earned their pensions. They are aware that the UK state pension is still one of the least generous in the developed world. If, as a result of pressure from the clever young people who work in the think-tanks, a future government is forced to give up that commitment made by the coalition, then how will they regard politicians in general, and young ones in particular?
Kitty Donaldson, Chief Political Commentator
Andy Burnham wants a grown-up debate on what is affordable in the long term. Pensioners, or those about to be, will be alarmed at any threat to their incomes. Polling shows younger people worry about whether their grandparents will be looked after. That’s why the decision to scrap the winter fuel allowance went down so badly with voters across all age groups.
But if Burnham is to make a grand bargain with pensioners to make social care free at the point of use, it is time to look again at the triple lock. It is intergenerationally unfair because its ratchet effect places an escalating fiscal burden on the working-age population.
By starting a conversation now, probably three years out from a general election, Burnham is inviting his political opponents to join the debate. Whether the Tories or Reform UK want to risk alienating older voters who actually turn out at elections is another question.
The triple lock has to go at some point – if it lasts forever, the state pension will eventually exceed average earnings. This is because the lock ensures that the pension rises in line with earnings growth as a minimum. If either inflation, or a flat 2.5 per cent rise is bigger, then it rises by the larger of those two metrics instead.
We’re obviously a way off that yet, but the theory remains. Remember, it is estimated that the lock has added £16bn per year to UK public spending compared to what would have been spent if pensions had risen in line with average earnings alone since 2011.
Labour committed to keeping the triple lock this parliament, and so they should do that – but in my view it would be right to review it after that, especially during a tricky economic period when tax rises or spending cuts will be required.
What is needed though is delicate communication over this. Getting rid of the lock does not mean cutting state pensions. They should be tied to earnings growth, so that pensioners get the same rises as workers, just not greater ones.
Labour will be well aware of the damage the winter fuel allowance cut did politically, and will be desperate to avoid a repeat.