Advocate: Should the triple lock be scrapped?

Advocate: Should the triple lock be scrapped?

This month’s question: Should the state pension triple-lock be scrapped?



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Matthew Harris, IFA at Dalbeath Financial Planning

There seems little doubt that the state pension lagged too far behind earnings and prices during the 1990s. As such, the triple lock on the basic state pension (and new single-tier state pension), which guarantees annual increases of the higher of CPI, earnings, or 2.5 per cent, has played an important role in increasing the income of pensioners to an acceptable level.

However, that work appears to be nearly complete. The average income of pensioners is now greater than the average income of workers, according to some measures.

What is most troubling about the triple-lock is it guarantees the state pension will rise faster than earnings and prices over the long term. Einstein is alleged to have said “the most powerful force in the universe is compound interest” and we can see that at play here.

If we start from a state pension of £155 per week today, then by 2050 increases in inflation and earnings may require this pension to rise to £230-260 per week to maintain pensioners’ spending power, which might seem fair enough. But the actual state pension under the triple lock system is almost certain to have risen to at least £380 per week by then.

The spending power (vs inflation or earnings) of pensioners will therefore increase by perhaps 50 per cent. This comes at a time when nurses and other state employees are seeing their spending power fall each year relative to inflation and average earnings. This seems an unjustifiable and unsustainable bias towards pensioners.


Ricky Chan, chartered IFA at IFS Wealth and Pensions

The proposed replacement for the triple lock is a double lock that will most likely scrap the 2.5 per cent minimum increase, but retain the inflation and earnings link.

The main argument for removing it is because the rising cost of the state pension – £98bn in the last tax year – is now “unsustainable”. 

Another argument is because there is a trade-off with the state pension age. As the cost of the pension increases the government has to increase the pension age to offset it.

Although these are good arguments to keep the public finances in (slightly) better shape, I’m unconvinced it would make a huge difference, and even more changes are likely to be needed. 

It’s a fact that we will have older pensioners due to demographic changes, so naturally state pension costs will increase as a percentage of GDP. But I don’t think we should be endlessly tweaking pensions as this prevents effective financial planning, and people lose trust and confidence in the government.In addition, I think there are many lower and middle working classes that depend on the state pension. 

Pensioners typically spend more of their incomes on high-inflation items (such as energy) which are not well accounted for by the consumer price index. So to some extent, the triple lock compensates pensioners for this.