According to former pensions minister Altmann, abandoning the earnings link sets a “dangerous precedent” as the nation has a "divided pensioner population", in which some are well-off while others are not.
She said even after years of the triple lock being in place it was still lower than in 1979 relative to earnings and therefore the chancellor should tread carefully before making any such tweaks.
In 2010, the coalition government decided that pension benefits had fallen too far behind other benefits and, with many pensioners living in poverty, it introduced the ‘triple lock’ guarantee to increase state pensions by the best of inflation, earnings or 2.5 per cent.
But figures from the Pension Policy Institute showed that since 2010, the basic state pension has been worth a mere 19 per cent of average earnings, while the new state pension is worth 24.8 per cent. These are both below the 1979 level.
Altmann said: “The triple lock had already outlived its usefulness by 2016 as it was applied to the full new state pension while only the old basic state pension was triple-locked, with the other elements tied to prices.
“So it did need to be reconsidered, but that should take place with careful consideration and perhaps reverting to a double lock, but the 2.5 per cent is an arbitrary figure which is difficult to justify on economic or social grounds.”
Short of 'minimum income standard'
Pressure is piling on the chancellor to review the pensions triple lock after data from the Office for National Statistics showed average earnings jumped 8.8 per cent in the latest quarter.
If earnings growth remains at 8.8 per cent, Quilter pointed out the triple lock will increase the cost of the state pension by £8bn, £5.7bn more than if it increased by 2.5 per cent.
However, Just Group pointed out that if it were to increase by 8 per cent, it would still be £730 a year short of the £10,816 Minimum Income Standard recommended by the Joseph Rowntree Foundation as the annual income needed to provide an acceptable minimum standard of living.
Stephen Lowe, group communications director at Just Group, said: “While to many an 8 per cent increase in the state pension will seem extraordinarily generous, our analysis shows even this level of uplift would still not give single pensioners an income the public thinks provides an acceptable minimum standard of living.
“We know the state pension was never designed to do more than provide a very basic level of retirement income which is why building up some private pension is so important.
"The challenge for many people is how to bridge the gap between what the state offers and what the public considers an ‘acceptable’ standard of living in retirement.”
Research from Canada Life, published this week (August 16), found there is a large generational divide when it comes to keeping the triple lock in its current form.
Almost half of savers (46 per cent) believe the state pension triple lock should stay as it is, despite earnings surging this year, but over 50s are much more likely to want to keep the triple lock promise with 59 per cent supporting it compared to about a third (34 per cent) of those under 50.
amy.austin@ft.com
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