The Resolution Foundation has just published a new briefing on the State Pension Triple Lock. What a ratchet!, written by The Foundation’s Ruth Curtice and Alex Clegg, shows why they believe that the Government should call time on the Triple Lock.
It finds that the policy has been:Far too expensive. The State Pension is already the single biggest driver of higher welfare spending in this Parliament (set to cost £13.8bn more by 2029-30 in real terms). Replacing the Triple Lock with a smooth earnings link from next year would save £650 million a year by the end of the Parliament, enough to treble the funding of the Youth Guarantee to tackle Britain’s NEETs crisis.
Failed to reduce poverty. Given its exorbitant cost, the Triple Lock has been remarkably ineffective at reducing poverty. In the 15 years running up to its introduction (1997-98 to 2011-12), pensioner poverty rates fell by 15.8 percentage points. In the 12 years following the introduction of the Triple Lock pensioner poverty has risen by 2.3 percentage points.
Unhelpfully arbitrary. The OBR projects that State Pension spending will rise by £80 billion over the next 50 years. But the unpredictable ratchet effect of the Triple Lock means this figure could be £40bn higher or lower, depending on economic conditions, adding huge uncertainty to the public finances and retirement planning.
The Foundation says that the New State Pension is now worth 30 per cent of full-time median earnings, just shy of the 31 per cent level recommended by the original Pensions Commission back in 2003. So, while there is a strong case for calling time on the Triple Lock now and replacing it with a smoothed earnings link, at the very minimum the current Pensions Commission should recommend a target State Pension level after which the Triple Lock is no longer needed.
Ruth Curtice, Chief Executive of the Resolution Foundation, said: “The pensions Triple Lock is a terribly designed policy that has proven to be far more expensive than originally planned, far less effective at reducing poverty than many hoped, and risks causing further economic harm if it continues for much longer.
“The most sensible way to keep the State Pension rising in line with the living standards of the rest of society is through a smoothed earnings link, rather than a random ratchet. Doing this next year would save £650 million a year by the end of the Parliament – enough to treble the current support available to help the one million young people not in employment, education or training back into work.
“We cannot afford to keep this policy for another Parliament. The Government should call time on the Triple Lock as soon as possible and put the savings from doing so to far better use.”
IFA Magazine readers can read the full report from the Resolution Foundation here.
Sharing her reaction to today’s briefing from the Resolution Foundation, Rachel Vahey, head of public policy at AJ Bell, comments:
“The Resolution Foundation has added fresh momentum to an increasingly important debate. The triple lock has played a valuable role in boosting the state pension, but the bigger question now is what it is ultimately meant to achieve and whether it’s sustainable in the short, medium and long term.
“This matters not just for today’s retirees, but for future generations too. The state pension is one of the biggest spending commitments on the public finances and is only set to increase costs further in the years to come.
“Ministers cannot dodge this difficult topic forever. Instead, the government needs to have a proper conversation about its long-term future.
“If the government wants to move the debate forward, it first needs to be clear about the income level it believes the state pension should provide. Once that target is set, there can be a more constructive discussion about how best to get there. A smoother link to earnings, for example, could be one option worth exploring, particularly as it would avoid some of the sharp year-to-year swings we have seen recently under the triple lock.
“With the independent review of the framework for future state pension age decisions due shortly, the government now has a real opportunity to finally face the music and set out a clearer long-term plan.”
