At present, the government has committed to a triple lock policy which will ensure the state pension rises each year by the highest of price inflation, average earnings or 2.5 per cent.
In April this year, when Baroness Altmann was still pensions minister, she said a triple lock protecting the value of the state pension will remain until at least 2020, despite the rising cost to younger generations.
However, Ms Altmann has said she believes the triple lock has fulfilled its purpose and is not necessary anymore.
She said: “In fact, in some ways, having the triple lock has been used as an easy symbol for politicians to point at to claim they are looking after pensioners. This can sometimes mean they do not believe they need to engage in more serious and in-depth policymaking for the aging population.
“Such totemic symbols may be politically convenient, but are not a sound substitute for carefully considered policy reform.”
She added pensioner incomes must still be protected with a double lock and keeping the triple lock construct beyond the current commitment to 2020 makes little sense.
“Together with the new state pension which started from April 2016, the income of existing and new pensioners is now well above historic norms. It is absolutely right that we protect pensioner incomes, but a double lock - with state pension being increased by the higher of the rise in average earnings or inflation - could still achieve that important aim from 2020.
“By committing to a double lock, rather than the triple lock, and dropping the promise of increasing state pensions by at least 2.5 per cent even if earnings and prices rise by far less than that, the government is forecast to save billions of pounds on long-term pension costs.”
A report produced by the government’s actuary department last year suggested the cost of the triple lock has been around £6bn a year, she said.
According to the same report, the cost of the triple lock could well be materially higher in future, especially if earnings and price inflation stay low for a longer time.
“On its most likely scenarios, keeping the triple lock could add around 10 per cent to spending on state pensions by 2040, but in a deflationary scenario the costs would be significantly more - potentially more than double the cost of just linking to earnings by 2070. By moving to a double lock, billions of pounds could be saved in future pension spending.”
Baroness Altmann added that whilst she was pensions minister she had recommended the government take the decision to announce it was considering moving to a double lock from 2020 onwards.
She said a double lock could prevent the need to continue increasing state pension age.
“Triple lock is a totemic political construct that has long-term dangers: The triple lock is a classic example of a political policy decision that is in danger of outlasting its purpose because politicians fear taking difficult decisions.
“It has also been a useful policy for easily asserting that pensioners are being protected, without carefully considering the long-term as well as the short-term implications and inter-generational aspects.”
Tom McPhail, head of retirement policy at Hargreaves Lansdown said the triple lock was never going to be sustainable in the long term and for as long as it exists, it will divert an ever increasing share of government spending towards pensioners, at the expense of the working population.
“A balance always needs to be struck between protecting the standard of living of pensioners, and not over-burdening taxpayers. There is a strong case for using a dedicated pensioners’ RPI measure for inflation-proofing the state pension, rather than either a triple lock, or the double lock proposed by Ros.”
ruth.gillbe@ft.com
