The state pension is, from next April, set to increase by more than £560 a year. This is due to the triple lock policy, which determines rises according to inflation, wage growth or 2.5 per cent – whichever is highest. Yet with the state pension already making up almost half of the Government’s benefits bill, just how much longer the triple lock can be sustained and what could replace it? The i Paper’s experts offer their perspective.
There are many options that could replace the lock but perhaps one of the most popular is a smoothed earnings link, a proposal backed by members of the Institute for Fiscal Studies (IFS) and the Resolution Foundation.
For example, when wages are lower than inflation, pensioners get a rise in line with inflation but when wages are higher than inflation, those on the state pension get this too.
Although perhaps more complicated to understand than a simple change to a double lock – removing the 2.5 per cent element – it is ultimately one of the fairest.
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The easiest way to reduce the burden of the triple lock on the state pension is to keep it – but take a series of measures to contain the cost.
Next, it can promote more aggressively its present scheme that allows people to defer taking their pension in exchange for a higher payout later. It probably would not cut the overall cost to the taxpayer but it would improve the Government’s cash flow and since its headline deficit would improve, the markets would respond positively.
Hamish McRae is an award-winning business and economics journalist. He writes a weekly column for The i Paper
This would mean that pensioners pay packets would still go up by the highest of inflation or average earnings growth every year, but in years when both figures are very low, they would not get a 2.5 per cent increase.
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Cutting it would be a way for a political party to signal that the lock is not untouchable, whilst also reasonably being able to argue they were giving those who get the state pension a good deal. They would still, over time, see their payments go up by higher than both inflation and average earnings.
Callum Mason is The i Paper’s deputy money editor
Ros Altmann: Reform National Insurance contributions
In a rational world, the Government would review the adequacy of state pensioner support regularly. This would presumably conclude that the 2.5 per cent part of the triple lock has no economic or social rationale but adds to long-term costs.
But this could be done by ensuring annual increases in line with an average of inflation and earnings growth. Costs could also be controlled by making tax-free pensioner benefits taxable and by increasing the number of years of National Insurance needed for a full state pension from 30 years, which is nowhere near a full working life, to 40 or more. We need a proper review to achieve political consensus for pensioner support.
Baroness Ros Altmann is a Tory peer and pensions expert
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