State Pension  

State pension 'must increase above inflation'

State pension 'must increase above inflation'

The state pension will need to increase above inflation or earnings, regardless of whether or not the triple lock remains beyond 2020, pensions consultancy Hymans Robertson has argued.

The firm argued that a shortfall in private retirement savings will make above inflation and earnings rises necessary to keep pensioners out of poverty.

Under current rules, the state pension increases annually at the highest of earnings, inflation or 2.5 per cent - the so-called triple lock.

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In his Autumn Statement, chancellor Philip Hammond committed to keeping the triple lock in place until 2020, but left the way open to remove it after that.

But Hymans Robertson said the cost savings of a decision to scrap the triple lock would be short-term in the context of "a looming savings crisis".

“The motivation to remove the triple lock and return to the former policy of double lock would be based on short-term cashflow considerations rather than sensible policy decision-making," Chris Noon, partner at the firm, said.

"It will come with big political risks, but more importantly the cost savings to government will be insignificant in the context of the pressure building on the state pension due to huge savings shortfalls."

 Mr Noon said since its introduction seven years’ ago the triple lock had cost the government "in the region" of £1.8 to £2bn.

The new single tier state pension, meanwhile, would save the government £8bn by 2060, making the cost of the triple lock "insignificant".

He said the removal of compulsory annuitisation would also increase the need for an adequate state pension.

“‘Freedom and Choice’, will put  even greater stress on the state pension as people have the ability to access pension pots from age 55 which they can run down. This will result in more people eventually relying solely on state pensions,” he said.

"As a nation we need to put long-term policy making ahead of short-term cashflow needs. And we need to truly incentivise savings rather than tinker with the system, kicking the can down the road for future generations to deal with," he said.