In Westminster, MPs of all stripes don’t want to be the one to say the unsayable: for the state pension triple lock, the end is nigh.
Figures released on Tuesday morning from the Office for National Statistics show the number of people claiming the state pension is projected to rise by 1.7 million between mid-2022 and mid-2032, with 13.7m people claiming the benefit by the end of that period.
The triple lock guarantees the state pension rises each year by the highest out of the Consumer Prices Index measure of inflation, wage rises and a 2.5 per cent floor.
When it was introduced in 2011 it was expected to cost around £50m a year. But with the advantage of the triple lock, the value of the state pension has skyrocketed, rising by 10.1 per cent in 2023, and by 8.5 per cent in 2024. Around half of the UK’s current benefits bill is spent on the state pension, which cost £110.5 billion between 2022 and 2023, expected to rise to £124bn from 2023 to 2024. It’s time for MPs to say the quiet bit out loud: the triple lock is no longer affordable.
The current lock produces a ratchet effect, meaning the state pension grows at a faster rate than worker earnings over time, accounting for an ever greater share of government spending. According to the Office for Budget Responsibility, the ratchet means the state pension will reach nearly nine per cent of UK gross domestic product in 50 years.
The state pension has risen by about 60 per cent in cash terms since 2010, compared with 40 per cent for average earnings. Protecting the spending power of the elderly on fixed incomes made sense in an age where many relied solely on state pensions. Nowadays the average retiree has assets worth around £350,000 and many are mortgage free. There has also been an uptick in take up of private pensions, although given most private pensions are under pressure from inflation, the Government will almost certainly have to act as the backstop in future.
By how much pensioners ought to be protected is a political question and one that no one is prepared to answer. Politicians should be honest about settling where the standard of living for retirees should rest.
Rachel Reeves needs to cut pensions, not benefits
Read MoreHowever, concerned by the dump truck of political manure that’s poised ready to land on anyone who dares question the sanctity of the triple lock, most MPs won’t go on the record.
“MPs of all parties have been in complete denial about the ageing population and its knock-on effects on the pensions bill. To keep the triple lock in place they would have three options open to them and they are all are lose, lose, lose,” David Sinclair, chief executive of the International Longevity Centre think-tank told The i Paper.
“They could either increase the retirement age, increase tax or take more debt. Every year the Government can encourage a worker to stay in work and in good health benefits the economy. It might be time for a nanny state on steroids to increase preventative medicine and stop people from retiring until as late as possible. A healthier population works more, volunteers more and spends more,” he added.
The Pensions Policy Institute think tank has suggested alternatives to the triple lock, including a double lock or increasing the state pension in line with whichever is the higher of inflation and earnings growth. Another is to have an earnings-linked option one, by which state pensions rise in line with earnings growth, or earnings-linked option two, which would increase state pensions based on an average of CPI and earnings growth.
But one Tory MP, speaking privately, said the answer could be to break the link with earnings altogether.
“The bit of the triple lock that probably isn’t as important as the other two is keeping pace with earnings. Because if you are a pensioner, what matters most to you is ‘can I afford what I need to buy and will things advance? Will I get more money rather than finding my income frozen?’ So, the 2.5 per cent and inflation are the two most important criteria in the triple lock because they’re the things that really protect a pensioner’s spending power. How well everybody else is doing who happens to be earning doesn’t seem to me to be as relevant,” the MP said.
On Wednesday, Chancellor Rachel Reeves will make a keynote speech about economic growth. Younger workers have suffered the worst from weak growth over the last 10 years. What you won’t hear her saying is the triple lock is unsustainable for the future.
Reeves has guaranteed the triple lock until the next election. Tory leader Kemi Badenoch got into trouble when she mused about it out loud. Don’t expect politicians to voice their concerns. Not in public at least.
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