PensionsNov 8 2016

Pension triple lock needed for 30 years to 'do its job'

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by
Pension triple lock needed for 30 years to 'do its job'

Scrapping the triple lock in 2020 would keep the state pension at unacceptably low levels, leading to increased poverty in retirement, prominent supporters of the policy have claimed.

According to the Trades Union Congress, the triple lock was originally introduced to help push the state pension back to its level before the 1980s, when the Thatcher government took away the link to earnings.

The triple-lock, which links annual state pension increases to the highest of earnings, inflation or 2.5 per cent, was introduced in 2010. It is set to be in place until at least 2020.

On Sunday, the influential Work and Pensions Select Committee called for the triple lock to be abolished in 2020 - on the grounds that it was unaffordable - and replaced with an earnings-linked lock.

But TUC policy officer Tim Sharp disagreed, saying it must remain in place for another "three decades" to get the state pension back to its pre-1980s level.

He said in 1979 the state pension provided 26 per cent of average full-time earnings. 

Now, he said the average recipient of the basic pension receive just 14.9 per cent of average full time earnings.

Even those receiving the full flat-rate pension only receive 24 per cent of earnings. But Mr Sharp pointed out that not everyone has full entitlement.

"The so-called earnings-link, which saw the State Pension increased in line with wages was abolished in 1980s, and the value of the state pension fell sharply after that point," Mr Sharp stated.

"The introduction in 2010 of the triple lock was an explicit attempt to rebuild the value of the State Pension."

Pensions expert Steve Bee agreed that the triple lock had not achieved its purpose of making up for 30 years of degraded value.

"I've always seen the triple lock as a repairing mechanism," he told FTAdviser.

"People don't understand what happened in the 1980s. Every year the state pension got worse and worse." 

He said pinning the state pension to earnings when it was still at a degraded level would force more people onto means-tested benefits.

Means-testing, he argued, took away the incentive to save for a private pension. 

He said the National Insurance system architect William Beveridge's principle that state pension should be a flat-rate guarantee designed to encourage additional saving should continue to be the goal. 

Intelligent Pensions technical director David Trenner said, in real terms state pensions were still lower than they were when the link to earnings was stopped more than 30 years ago.

"I do agree with the point that if we are looking for a universal benefit it needs to be updated to make up for 30 years of falling behind earnings," he said.

However, he said there was no clear consensus on whether the state pension was meant to be a safety net or a universal benefit, and that needed to be decided upon. 

Prominent supporters of the move to scrap the triple lock include former pensions minister Ros Altmann and former work and pensions secretary Iain Duncan Smith.

An alternative proposal to deal with the problem of affordability, put forward last week by Michael Johnson of the Centre for Policy Studies, was to lift the state pension age to 80 (from its current level of 65) but increase the benefits to around £200 a week up from £155.65. 

james.fenyhough@ft.com