PensionsMay 5 2017

Pension triple lock puts income wedge between young and old

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Pension triple lock puts income wedge between young and old

Pensioners have seen sustained increases in their incomes thanks to the triple lock, with their average income growing by nearly 15 per cent since the recession according to analysis by the Institute for Fiscal Studies.

Meanwhile average income among the 22-30 year olds have only just recovered to their 2007/08 levels.

On the whole, real average income is only 5 per cent higher now than it was in 2007/08, which is more than 10 per cent lower than might have been expected before the recession based on historical growth rates.

The analysis showed that the recession had relatively little impact on median pensioner income, which is projected to have been 15 per cent higher in 2016/17 than in 2007/08.

The IFS said: “This increase is both the result of some individual pensioners experiencing growth in incomes from one year to the next (for example as a result of the ‘triple lock’ on the state pension) and, importantly, the fact that those newly retiring tend to have larger pension entitlements than previous waves of retirees.

“By contrast, young adults were hit hard by the recession, with median income for that group falling by more than 10 per cent between 2007/08 and 2012/13.

“Their incomes have since bounced back relatively strongly, but their median income is only now recovering the level it was at in 2007/08.”

The future of the triple lock - which increases the state pension by the highest of earnings, inflation or 2.5 per cent - has come into question during the general election campaign.

There have been calls to downgrade it to a double lock - removing the 2.5 per cent commitment - and the Conservative Party has yet to reveal whether it will keep the policy or scrap it.

Meanwhile the Labour Party has promised to maintain the policy.

Those aged between 31 and 64 were less affected by the recession than young adults, but slow growth since means their average incomes are only slightly higher than in 2007/08.

The IFS has predicted that if the Office for Budget Responsibility is correct about the outlook for employment, earnings and inflation, there will be no real growth in median income over the next two years.

This would leave incomes in 2021/22 more than 15 per cent below where they were expected to be before the financial crisis hit.

damian.fantato@ft.com