A parliamentary committee has concluded that the triple lock on the state pension has to go because it is “unsustainable” and “unfair” on younger families. The pledge means that each year, parts of the state pension will be increased by either inflation, earnings or 2.5pc – whichever is the higher. When I served as pensions minister, my experience led me to believe a double lock would be better. Here’s why:-
- Triple lock has been used by politicians and Government to cover up pension policy failures: I discovered, as a Minister, that when people raised problems about any aspect of pensions policy, the official reply was that the Government had the triple lock. That was supposed to be the catch-all phrase that proved the Government was unquestionably looking after pensioners properly.
- In fact triple lock only applies to selected parts of the State Pension, not all of it: The triple lock has, of course, done a good job in many ways, but it applies only to the basic and new State Pension levels, and not to other pensions and pensioner benefits. State Second Pension, Earnings Related State Pension, disability, war veterans and widows benefits, carers’ benefits are all only linked to prices.
- We must protect pensioners but also consider inter-generational fairness: The triple lock has fulfilled a useful purpose in boosting the level of the state pension, but a double lock for the long-term would offer pensioners proper ongoing protection, better than earnings or prices alone, without the commitment to a 2.5% figure that is unrelated to the economy or society. Government needs to consider inter-generational fairness and long-term costs.
- The 2.5pc is an arbitrary number that makes no economic or social sense. If Government believes the state pension should be brought up to a higher level, then it can consider each year how much extra to increase it beyond prices or earnings, but without committing to an arbitrary number.
- As Pensions Minister I suggested a double lock from 2020 onwards: Last year, as Pensions Minister, I proposed that Government should commit to moving to a double lock after 2020. Currently, the law only requires rises in line with earnings, but using a ‘double lock’ would ensure the state pension rises in line with either earnings or prices each year, to protect pensioners against future rises in prices or national earnings levels.
- Double lock helps reduce long-term forecast cost of state pension in national accounts: For the purposes of forecasting long-term state pension costs, the triple lock apparently must be assumed to stay in place until there is an announced policy change. The Office for Budget Responsibility (OBR), therefore uses the triple lock for its forecasts, even though legally state pension increases revert to earnings from 2020. A double lock would help take some pressure off the need to increase the state pension age as much as might otherwise be the case because the forecast rise in state pension costs would be lower than if we assume the triple lock stays in place in perpetuity.
- Since 2010, pensioner incomes have been boosted significantly: Leaving pensioners in poverty is unacceptable, yet until a few years ago that was the fate of too many or our country’s elderly people. In 2008, the Basic State Pension had sunk to the lowest level relative to average earnings for decades. However, since 2010 the incomes of the UK’s 13 million pensioners are now more than £10 a week higher than they would have been if the state pension had only been linked to average earnings. Recent figuresshow that the percentage of pensioner households living in poverty has fallen from just under 30% in 2002/03, to 13% in 2014/15.
- Government must not listen to calls to increase means-testing – it has to be safe to build private savings: The vast majority of pensioners are not well-off. The majority do not have high incomes and the State Pension itself is low – even the new State Pension is only around £8,000 a year. Indeed, the state pension is being reduced for future generations. It is therefore vital that people have private savings as well, or they will have relatively little to live on for the rest of their lives. Having just introduced the new flat-rate state pension, with the state providing just a basic level of income and encouraging people to save privately on top, more pensioner means-testing would be disastrous. It may sounds appealing to say that more help should be given to the poorest pensioners, but that is really saying that those who have saved for their future should be penalised. The long-term result of such policies will ensure more future pensioners will be poor, whereas we need a system in which saving for retirement is the right thing to do. A fair, basic state pension and encouragement of private saving is the best way to manage state pensions for the long-term. Moving to a double lock would help set a stable and fairer base for the long-term too.