Former Secretary of State for Work and Pensions Stephen Crabb has added his voice to calls for the government to review the state pension Triple Lock. Giving an interview to Sky News, the Conservative MP said the guarantee has “served its purpose” and should be scrapped or at least modified.
Tom McPhail, Head of retirement policy:
"There is a growing consensus for a review of the Triple Lock. Pensioner incomes have improved very substantially in recent years, in part thanks to the Triple Lock itself and partly because of the final salary pension system hitting peak payouts. The incomes of many in work have flat-lined at best in recent years. There is therefore a growing recognition of the disparity between the fortunes of the Baby-boomers now in retirement, and those younger cohorts who are being asked to pay for the cost of the state pension through their taxes.
The Triple Lock was always unsustainable in the long term; it was just a question of how and when the government would move on from it. Given the strength of consensus now developing, it appears increasingly likely we’ll see changes in the next parliament."
For and against the Triple Lock
Others who have also suggested a review of the Triple Lock include another former Work and Pensions Secretary Iain Duncan Smith, The Work and Pensions Select Committee, former Shadow Work and Pensions Secretary and author of The Pinch David Willetts, and Head of the Institute for Fiscal Studies Paul Johnson.
This week Shadow Chancellor John McDonnell has pledged to retain the Triple Lock.
What is the Triple Lock?
It is promise (not secured by any legislation) to increase the Basic State Pension every year by the highest of inflation, earnings and 2.5%.
Between 1979 and 2008, the basic state pension fell from 26% of mean full time earnings, to just 16%. It has since recovered a little and now stands at around 18.5% of average earnings. The new state pension is worth more, around 24% of full-time earnings.
The effect of the Triple Lock has been to cost the government £4.5 billion in extra payments in 2016, compared to if they had used a simple earnings link.
By 2064, the cost of the Triple Lock is projected to increase expenditure on the state pension from 6% of GDP (using an earnings link), to over 8%.
On a range of measures, younger generations are set to be worse off than the baby boomers: lower house ownership, higher student debt, longer working lives, lower private pensions etc.
After housing costs, median pensioner household incomes and now estimated to be just above the working age average, having risen from below 70% in the late 80s.