Ministers have been warned that they must find the courage to scrap the UK’s “wasteful and expensive” state pension triple lock.
The mechanism should be phased out “the sooner, the better”, according to the Resolution Foundation think tank, formerly run by the Government’s pensions minister Torsten Bell.
The policy, which costs three times more than intended according to the Office for Budget Responsibility (OBR), ensures the state pension rises each year in line with inflation, wage increases or 2.5 per cent – whichever is highest.
Speaking to The i Paper, the think tank’s economist Alex Clegg said the policy “isn’t designed well” and may not be the best use of money during “quite a tight fiscal reality”.
The organisation, where Bell was CEO for nearly a decade, has issued a new report arguing that the policy is “far too expensive” and failing to reduce poverty.
It comes after The i Paper revealed an increasing cohort of Labour MPs are keen to shift away from the triple lock in the name of generational fairness and economic sustainability.
Asked whether there is sympathy within Government for reform, Clegg said the new Pensions Commission – launched by Bell last summer – is “ongoing” and that conversations will “definitely be happening”.
“The Government will definitely be looking at all kinds of reforms, whether that means that they’re close to moving on the triple lock is a different question,” Clegg said. “But these conversations will definitely be happening, and it’s something that the Government will be debating internally.”
A spokesperson for the Department for Work and Pensions said that the Government had committed to the triple lock for the rest of this Parliament, and that the commission is “examining how we can ensure secure retirements for tomorrow’s pensioners”.
Last week, Liam Byrne became the most prominent Labour MP to admit the triple lock needs to go, following a groundswell of private discussions among colleagues about how to phase it out while causing minimal electoral damage.
While there have long been murmurings from within Labour, and other parties, that the triple lock is unaffordable and unsustainable, many politicians believe scrapping it would be too politically toxic among older voters. All the major political parties, bar the Greens, are currently committed to it.
Tony Blair recently warned the policy is “unaffordable long term”, and Conservative former chancellor Jeremy Hunt said it is “immoral” due to being partly funded by debt on younger generations.
Pensions Minister Bell previously described it as a “silly” system before he became an MP.
The Resolution Foundation’s new report, shared with The i Paper, argues that “time should be called on the expensive and wasteful triple lock on the state pension” as it favours retirees over typical workers.
The think tank’s analysis argues that the triple lock is the biggest driver of higher welfare spending in this Parliament and is set to add £13.8 billion to the bill by 2029-30 in real terms. The report also claims it has not reduced pensioner poverty, with rates rising by 2.3 per cent since it was introduced in 2011.
The Resolution Foundation has long proposed a new system called a “smoothed earnings link”, which tracks wage growth but protects the value of the state pension from temporary price shocks by pinning it to inflation in times of economic uncertainty. A similar system is used in Australia – but private pensions in the country are also more generous.
In the latest report, Clegg and CEO Ruth Curtice argue that state pension is already at around 30 per cent of median full-time earnings.
“Our view is that level has now been reached, and politicians should find the courage to replace the triple lock with a policy that is transparent, predictable, and fair across generations,” they state.
The report’s analysis suggests the state pension bill is now £12.6bn higher than it would have been under a smoothed earnings link since 2011, and switching to such a policy from next year would be a net saving of around £650m in 2029-30.
Some Labour MPs publicly, and privately, argue this money could be better spent supporting younger generations, such as the one million young people not in education, employment or training in the UK.
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