Pensions a key election battleground
IN ANNOUNCING a snap General Election for June 8, Prime Minster Theresa May said she hoped to bring “certainty and stability” to a country all at sea over its impending departure from the European Union. For pensioners and those planning for retirement, however, the announcement has had the opposite effect. Not only does the prospect of a General Election mean that the Government’s controversial triple lock, which guarantees that state pensions will rise by the higher of inflation, the increase in average earnings or 2.5 per cent each year, could well be scrapped but a decision on when to raise the pension age will be put off too.
The Conservatives had said they would keep the triple lock in place until the next General Election – which was expected to take place in 2020 – while a decision on whether the state pension age should rise to 68 earlier than 2046 as was originally planned was expected in early May. With Parliament due to be dissolved on May 3 that is now unlikely to happen.
For pensioners who want clarity on how much they will receive from the state each year and workers who want to know exactly how long they will have to work before being able to retire, the picture is anything but clear.
Despite this, Aegon pensions director Steven Cameron said the election campaign could actually be of benefit to pensioners because it will allow the parties to address contentious issues such as the triple lock to give clarity on its future.
Although the Conservatives are keen to ditch the triple lock, which is not only hugely expensive but is seen as unduly favouring pensioners at the expense of working-age people, Labour shadow chancellor John McDonnell has vowed to keep it in place until 2025.
For Richard Parkin, head of pensions policy at Fidelity International, this could turn out to be a positive for pensioners, who, he said, “remain a key constituency”.
“Notwithstanding the fact the Government will be busy with Brexit, I think [the election] could be very significant for pensions – rather than causing Government to postpone elements of policy making, I think it may embolden them to do more,” he said.
“I expect the rise in state pension age will go ahead under the banner of fairness and it’s a long way out.
“Furthermore, I expect triple lock and pensioner benefits in general to become an election issue as Mrs May could feel she can be tough without alienating too many voters.”
Pensions campaigner Ros Altmann, who served as pensions minister under David Cameron, said replacing the triple lock with a double lock is a key move the political parties could consider “to improve older people’s lives, while giving a more affordable, sustainable and fairer system for the future”.
“The 2.5 per cent commitment contained in the triple lock adds billions to the cost – it is estimated that the state pension has cost £3 billion more for the years 2010 to 2016 than if a double lock had been in place,” she said.
“The longer the triple lock lasts, the greater the future cost will become, with official forecasts predicting it will add at least £15bn to the long-term cost of providing the state pension.”
By removing what Altmann called the “arbitrary” 2.5 per cent element of the pension promise, she said the next government would be able to continue to protect pensioners’ incomes at the same time as halting the spiralling cost of state pension provision.
The latter point in particular, she said, may even negate the need to raise the state pension age at a faster rate than had been planned.
“The arbitrary 2.5 per cent figure is a political construct with no economic or social logic,” Altmann said.
“When it was introduced, the state pension had fallen well behind average earnings, so it served a useful function in increasing basic state pensions to a more reasonable level, but pensions have increased significantly relative to other benefits.
“The Pensions Commission recommended only increasing state pensions in line with earnings, but perhaps the Government should offer pensioners the higher of prices or earnings inflation, as a double lock, to protect against rises in the cost of living and average living standards of those in work.
“If other benefits are being frozen, or only protected by either prices or earnings, to add the extra 2.5 per cent protection for pensioners will cause increasing resentment and also adds to pressure to increase the state pension age faster, which disadvantages those with lower life expectancy and in poorer health.”