Why the pensions triple lock is unfair, unaffordable, and won’t work

The triple lock mechanism is doubtless a boon for pensioners, writes James Moore. But the money to pay for it has to come from somewhere – and in the current climate, that means that other groups will suffer

Chancellor Jeremy Hunt has promised the pensions ‘triple lock’ will be in the Conservative manifesto (PA Wire)

Just days after telling a parliamentary committee that the pensions “triple lock” was being “kept under review”, the chancellor Jeremy Hunt locked it into the Tory manifesto.

In so doing, he has landed our public services – which are already facing draconian cuts – with a multibillion-pound headache.

As someone much closer to retirement than I am to the start of my career, the triple lock could (in theory) be of benefit to me. But if politicians aren’t willing to be honest about the painful fiscal realities Britain faces, it falls to the rest of us to step up and say it: this pensions policy is unfair – and unaffordable.

So, what is it? Well, the triple lock increases the state pension based on the rise in average earnings, inflation, or 2.5 per cent, whichever is highest. It was ushered in under the Conservative-Liberal Democrat coalition in 2010, at which time it represented an unusual show of generosity, given the austerity measures the government was blowing across the public services and most other state benefits.

And it’s not that it hasn’t achieved anything: per the Resolution Foundation’s 2019 “Generation of Poverty” report, we know that the policy did successfully reduce the relative poverty rate among those over 70 to a record low. But it came at a high price to the public purse.

Hunt simply cannot consider a continuation of the triple lock without taking into account the current fiscal backdrop. Britain has an ageing population – and the costs associated with maintaining pensions at this level are rocketing.

“Compared with increasing the state pension in line with average earnings, we project that – on its own – the triple lock could easily cost anywhere between an additional £5bn and £40bn per year in 2050 in today’s terms,” said the non-partisan Institute for Fiscal Studies in its pensions review last year.

The state pension, pension credit and winter fuel payments now cost a total of £132bn, or 5.1 per cent of national income. This compares with just 4.2 per cent in 2003-2004.

Numbers like that may go some way to explaining why both the government and Labour have been equivocal about compensating “Waspi” women – those born in the 1950s who argue that they weren’t properly informed about plans to equalise their retirement age with that of men.

The Waspis (Women Against State Pension Inequality) have called for compensation of £10,000 or more each. With 3.6 million women affected, the total cost could easily exceed £36bn. Even the more modest sums recently suggested by the Parliamentary Ombudsman – between £1,000 and £2,950 each – could cost taxpayers more than £10bn if all those affected were to receive payouts.

The government needs to look at what it owes before pledging to pay more. Because that money has to come from somewhere. And while ministers have stated that they want to reduce debt as a share of national income, current projections would do little more than maintain it at more or less the current level. With more borrowing out, the choice is either higher taxes or (further) cutbacks in departmental budgets, which are already slated to face a fresh round of austerity.

This poses an uncomfortable question that none of our politicians seem terribly keen to face up to: what exactly do they plan to cut to pay for the triple lock?

The NHS and social care are already under huge pressure. Our school buildings are falling apart, and teachers are in short supply. As for local government, well, an increasing number of councils are going bust. What are we left with? The police? Defence? Transport?

You might be tempted to ask if there is any way out at all, or if it’s all doom and endless gloom. But there is an answer... it’s just a complicated one: economic growth. Were UK plc to move out of the slow lane, things would look rather different. But that, of course, requires ambitious, highly educated newcomers to join the jobs market, combined with decent investment. And right now, public investment is facing steep cuts.

It is also worth bearing in mind that while pensioner poverty has fallen dramatically, child and working-age poverty have gone in the other direction. Per Resolution, those born between 2016 and 2020 face the joint-highest rates of early-years poverty in 60 years, with more than 35 per cent expected to be living in poverty by the age of two.

So while I am certainly not arguing for pensioners to be thrown back on the poverty pile – where I shall join them, in time – I am arguing that the triple lock has done its job and needs to be replaced with a more rational system that takes into account our fiscal realities.

And lest we forget: most state benefits are increased solely in reference to the rate of inflation. Just saying...