The battle over triple lock pension pledges
THE battle lines have been drawn. With the main political parties unveiling their General Election manifestos this week it is clear that, as suspected, their stance on the triple lock on the state pension is to be one of the key differentiators between them.
To recap: the triple lock is a promise made by former chancellor George Osborne who, reputedly under pressure from the Conservatives’ then coalition partners the Liberal Democrats, promised that the state pension would rise each year by the higher of inflation, average earnings growth or 2.5 per cent.
The case for? It would help the state pension catch up with the growth in wages after years of falling behind, helping reduce pensioner poverty in the process.
The case against? It would be unaffordable in the long term and, if wages were stagnating, would give those already retired an unfair advantage over those still in work.
The Conservative Government only promised to keep the policy until the next General Election, which at the time was due to take place in 2020.
Labour and the LibDems have vowed to keep it in place indefinitely with the former also promising to hold the age at which the state pension is paid at 66. The Tories have said they would downgrade it to a double lock by removing the reference to 2.5 per cent.
Is this such a big deal for pensioners who, if they get the full new state pension, will get £159.55 a week this year, with that sum rising by more than 2.5 per cent if inflation, now at 2.7 per cent, continues to rise?
Jon Greer, head of retirement policy at Old Mutual, thinks not and says the Conservatives have “taken a bold step in committing to replace the triple lock”.
He said: “The main issue with the triple lock is that it guarantees the state pension will rise by 2.5 per cent no matter what.
“The double lock removes this ratchet effect. However, the state pension will still rise faster than both earnings and prices in the long run because of inflation, according to projections from the Office for Budget Responsibility.”
Richard Parkin, head of pensions policy at Fidelity International, agrees – to a point.
While he believes the Conservatives’ decision on the triple lock “makes sense” because “it was always arbitrary”, he noted that removing the 2.5 per cent element is unlikely to save the Treasury much money “given price and wage inflation expectations are rising”.
He added: “The Conservatives are clearly playing to intergenerational fairness and while the manifesto suggests a balancing of benefits between generations any government will have to ensure it recognises the wide variation in pensioner incomes.
“The current generation of retirees is relatively well off but many are still struggling to make ends meet.”
For Frances O’Grady, general secretary of the TUC, this is the crux with ongoing pensioner poverty the number one reason why the safeguard of the triple lock is needed.
“The Conservatives have made the wrong political choice,” she said. “If they can afford to cut corporation taxes they can afford the triple lock.
“The UK has more than 1.5 million pensioners in poverty and one of the lowest state pensions in the advanced world. The triple lock was meant to restore the state pension after it spent decades falling behind wages. That job isn’t finished.”
Anyone who has to rely on the state pension alone will agree with that statement, especially as the headline figure of £155.95 a week – almost £8,300 for the full year – is only for those eligible for the full pension. Those who have not built up 35 years of national insurance contributions, or who contracted out of a workplace pension in the past, will receive less.
Even for those who do receive the full new state pension it would take 15 years for their payments to reach £12,000 a year if it rose 2.5 per cent annually. If wage growth, currently at 2.1 per cent, stagnates or inflation reduces it would take considerably longer to hit £1,000 a month.
The picture is worse still for those in receipt of the old basic state pension, which is worth £122.30 a week and would take 27 years to grow to £1,000 a month at a rate of 2.5 per cent a year. Given it is older pensioners who receive the basic pension it would be unlikely to reach that level often.
It is no wonder, then, that Hymans Robertson partner Chris Noon said he does not agree with the Conservatives’ assertion that the triple has worked.
“Moving from triple lock to double lock saves £4 billion a year, equivalent to a £250-a-year reduction in state pension,” he said. “This reduction will have the most significant impact on low and middle-earners who will rely most on the state pension for their retirement incomes.”
Noon stressed that even with the triple lock the state pension would not be enough to fund a comfortable retirement, meaning the political parties should be focusing on long-term savings incentives too rather than just the short-term electoral gains a triple-lock stance may bring.
“The reality is that people will not be able to rely on the state pension alone,” he said.
“Currently, 75 per cent of people in the UK won’t have enough to retire comfortably – we all need to save more and there need to be better incentives to achieve this.”