The triple lock increases state pension spending by an extra £11billion a year, compared to what spending would have been if growth was in line with either prices or earnings, new analysis suggests.
State financial support to pensioners is greater because of the triple lock, the Institute for Fiscal Studies (IFS) said in a new report, but the question of affordability has been thrust back into the spotlight.
Analysis by the IFS indicated that the triple lock could potentially increase spending by a further £5billion to £45billion per year, in today’s terms, by 2050.
If the triple lock is kept in place indefinitely, it’s estimated the full new state pension could potentially be worth £10,900 to £13,400 per year in today’s terms by 2050.
There is a risk the cost of the triple lock could mean the government has to significantly increase the state pension age
PEXELS
The calculations generated more uncertainty over the future of the affordability of the state pension triple lock.
Heidi Karjalainen, one of the authors of the report and a research economist at the IFS, said: “The triple lock makes it especially hard to know how much you might receive from a state pension and how much the state pension will cost the state in the future.”
Ms Karjalainen suggested the cost of the triple lock could mean the government has to significantly increase the state pension age.
She said: “An additional real risk is that retaining the triple lock for too long increases state-pension spending so significantly that it leads to insurmountable pressure for a much higher state pension age.
“This would particularly affect people with poorer health who struggle to remain in employment until they reach state pension age.”
Becky O’Connor, Director of Public Affairs at PensionBee, commented: “The state pension forms a large proportion of most people’s retirement income – some people have nothing else at all in old age. It’s vital that older people are kept out of poverty and that their incomes rise by enough to continue to meet basic living costs.
Becky O’Connor, Director of Public Affairs at PensionBee, commented: “The state pension forms a large proportion of most people’s retirement income – some people have nothing else at all in old age. It’s vital that older people are kept out of poverty and that their incomes rise by enough to continue to meet basic living costs
"While there is a case to review the triple lock and make sure it is working as it should, its purpose – to ensure older people are at least able to eat and heat their homes, must be honoured.”
The IFS report, released as part of the Pensions Review in partnership with abrdn Financial Fairness Trust, said the earning growth figures published next Tuesday would likely be the figure used to determine next April’s state pension increase.
It is typically used as the measure of earnings for the triple lock and is likely to be above both 2.5 per cent and CPI (Consumer Prices Index) inflation in September.
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The triple lock mechanism means the state pension increases by whichever is higher out of wage growth, price inflation or 2.5 per cent.
Data covering April to June 2023 showed annual earnings growth of 8.2 per cent, and the IFS said this would likely be the highest figure, unless it falls “dramatically” in the next data release, or CPI inflation (currently at 6.8 per cent) makes a sharp upward turn in April.
A Department for Work and Pensions spokesperson said: “The Government is committed to the triple lock.
“As is the usual process, the Secretary of State will conduct his statutory annual review of benefits and state pensions in the autumn, using the most recent prices and earnings indices available.”
