The triple lock has raised state pension spending by around £11bn a year compared with what spending would be if pensions had risen in line with either prices or earnings since 2010.
Analysis from the Institute for Fiscal Studies (IFS) revealed that the triple lock could potentially increase spending by anywhere between a further £5bn and £45bn per year, in today’s terms, by 2050.
IFS said the triple lock generates considerable uncertainty for individuals regarding the state pension they might receive in the future.
There is also significant uncertainty in the future cost of providing the state pension.
The triple lock might increase the cost of providing the state pension to such an extent that it could also lead to other reforms to control spending, such as a much higher state pension age, which would be especially disadvantageous to poorer and less healthy people approaching pension age.
Becky O’Connor, director of public affairs at PensionBee, commented: “The state pension forms a large proportion of most people’s retirement income – some people have nothing else at all in old age. It’s vital that older people are kept out of poverty and that their incomes rise by enough to continue to meet basic living costs.
“While there is a case to review the triple lock and make sure it is working as it should, its purpose – to ensure older people are at least able to eat and heat their homes, must be honoured.”
This comes as today, the Office for National Statistics released its estimate for average earnings growth over the three months from May to July 2023 compared with the same months in 2022.
It is this figure that is typically used as the measure of earnings for the pensions triple lock and, because it is above both 2.5 per cent and CPI inflation, it will probably determine next April’s increase in the state pension.
Had the value of the state pension grown in line with either prices or earnings since 2011, it would now be around 11 per cent lower than it is – a full new state pension would be worth around £180 per week, compared with the actual current amount of £204 per week.
Tom Selby, head of retirement policy at AJ Bell, said: “Spiralling wage growth is set to provide another boon for retirees in 2024, a year after the state pension surged by 10.1 per cent on the back of sky-high inflation in 2022.
“It could also leave prime minister Rishi Sunak and chancellor Jeremy Hunt with a multi-billion pound black hole in the public finances ahead of the Autumn Statement in November.”
From the government’s perspective, the triple-lock creates enormous uncertainty about future state pension spending, Selby explained.
"For savers, this lack of certainty about future increases makes it difficult to plan their own retirement saving. What’s more, as the triple-lock increases the value of the state pension, other cost-saving measures – most likely future state pension age increases – will inevitably become more likely.”
A policy without a clear purpose
Selby explained that a central problem with the triple-lock is that it is a policy without a clear goal as things stand.
"Randomly ratcheting up the value of the state pension in real terms whenever inflation and earnings growth are below 2.5 per cent," he said. "It also leaves the government exposed to spikes in inflation or earnings – a flaw which has been brutally exposed in recent years.
“What savers of all ages need from the government is stability when it comes to state pension policy. Ideally, that would come through cross party agreement on how much income the state pension should provide in retirement and how much of someone’s later years should, on average, be spent in receipt of the state pension. Serious consideration should also be given to develop smoothed earnings and inflation measures which can then be used to deliver less volatile annual increases."
He added: "Sadly, there is currently a vacuum of sensible debate on the state pension, with the triple-lock essentially used as a totem for ‘doing right by older people’. It may require another independent review of the state pension to break this cycle and build the foundations of a consensus on what the state pension should look like over the long-term.”
A DWP spokesperson said: “The government is committed to the triple lock. As is the usual process, the secretary of state will conduct his statutory annual review of benefits and state pensions in the autumn, using the most recent data available.”
sonia.rach@ft.com
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