PensionsMar 2 2016

Webb: unexpectedly high cost of triple lock positive

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Webb: unexpectedly high cost of triple lock positive

The unexpectedly high cost of the state pension triple lock was a good thing, the former pensions minister has told a committee of MPs.

Steve Webb, who was in office when the policy was introduced, did, however, question whether it should continue indefinitely.

Since the triple lock was introduced in 2010, which promises to increase the state pension by the highest of inflation, wage growth or 2.5 per cent, its cost has proved higher than anticipated.

A report by the Office for Budget Responsibility last year said that original estimates for the cost of the triple lock were £0.4bn in 2014 io 2015, but because of higher inflation and lower earnings it has ended up costing £2.9bn.

MP for Gloucester Richard Graham asked whether the 2.5 per cent element of the triple lock should be linked to something else, given the near-zero inflation.

Mr Webb, who is now director of policy at Royal London, said: “If you have had 30 years of decline in the value of the state pension from 1980 to 2010 my worry actually is that recovering the value through the triple lock was going to be glacial so in a way a decent rise, getting things moving quickly, was a windfall to get to the policy outcome that we needed.

“That doesn’t mean we do it indefinitely but actually I think making a big kick early on was important.

“The point of pensions for most people, happily, isn’t to stop you starving it is so that when you have not got a wage coming in your standard of living sort of carries on broadly and doesn’t fall off a cliff.

“In the future we have got DC pension pots, we are buying level annuities or no annuity at all, no inflation protection on that half, so the inflation protection the state provides is really important.”

Maintaining significant real increases in pensioners benefits shouldn’t be a fiscal priority Lord Willetts

Last month the pensions minister, Baroness Altmann, announced that the state pension will see its biggest real-term increase in 15 years from April under the triple lock.

She said that from April the state pension would increase by 2.9 per cent - or £3.35 - to £119.30 a week in line with average earnings.

Lord Willetts, a former Conservative minister who is now executive chairman of the Resolution Foundation, questioned whether the triple lock should survive.

He said: “When you look at what is happening to benefits for other age groups, our estimates at the Resolution Foundation are by 2020 compared with pre-crisis levels working age benefits will be 9 per cent lower per person, child benefits 12 per cent lower and pensioner benefits per pensioner 19 per cent higher.

“So one shouldn’t automatically assume that the triple lock is repeated for another five years.

“If ever the pension were getting detached from living standards and were falling again you could reintroduce it for five years but I think by 2020 maintaining significant real increases in pensioners benefits shouldn’t be a fiscal priority.”

He said one alternative would be simply increasing the state pension by either prices or earnings.

damian.fantato@ft.com