Buying the inflation protection afforded by the state pension triple lock would cost over £100,000 in private savings, analysis from Fidelity International has found.
Using a flat rate annuity, Fidelity generated quotes that produced comparable annual income to the basic state pension and either tracked the retail prices index or rose by 2.5 per cent a year.
All quotes were based on a male, aged over 66, non smoker. Single life annuity and payable a month in advance.
With the state pension coming in at £159.55 a week or £8, 319 a year, to buy this level of income with no increases requires a pot of £161,850 yet by just increasing income in line with RPI, you needed £276,900 in private saving - just over 70 per cent more.
Even for the slightly cheaper option of increasing by 2.5 per cent requires a pot 43 per cent bigger at £230,650.
Richard Parkin, head of pensions policy, at Fidelity International said: “One can’t buy an annuity with triple-lock increases. But just taking one element of its guarantee shows its value. Providing inflation protection has always been expensive but is particularly so in today’s climate of low interest rates and rising inflation.
“While the state pension seems like a small amount of money, maintaining its purchasing power over time is a huge expense. Guaranteeing it will go up by at least 2.5 per cent even when inflation is low is a significant financial commitment and one the Conservatives have decided we can no longer afford.”
Commenting, Fiona Tait, technical director, Intelligent Pensions said: "The research shows that even relatively small annual increases to the state pension costs the government a lot of money.
"Given the stated aim to prevent pensioners out of poverty a measure of inflation proofing income during retirement is essential; the issue is whether the full protection of the triple lock can be justified, especially since it is funded by contributions from the working population.
"The triple lock was introduced at a time when inflation was higher than it is at present and pensioner incomes had already suffered in comparison with earnings. Under those conditions a floor of 2.5 per cent in addition to the links to prices and earnings seemed a reasonable precaution.
"In the current environment with inflation having been under 2.5 per cent for a considerable period, the pendulum has swung to the point where pensioners are receiving protection in excess of that afforded to many workers.
"At the same time both the number of people reaching state pension age and the length of time they are likely to claim their inflation-proofed pension continues to increase, while lower birth rates mean that the relative numbers of working-age individuals is falling.
"The UK government, whichever colour it happens to be, cannot ignore this reality and it seems likely that it will be a case of when rather than if the triple lock will be deemed to be unaffordable.
"Retaining a double-lock against rises in prices and earnings would still achieve the goal of protecting pensioners against inflation, while dropping the 2.5 per cent floor would perhaps put off having to implement other less palatable ways of managing the state pension bill.
Tom Selby, senior policy analyst at A J Bell, added: “Inflation is something of a silent destroyer of pension pots and many retirees will be unaware of the damaging impact it has on their spending power over the long-term. The state pension triple-lock is therefore an extremely valuable – and potentially expensive – guarantee, although the cost depends on the prevailing economic circumstances at the time.
“In this election campaign the triple-lock has been weaponised by the Labour Party in particular to accuse the Conservatives of attacking the elderly. The reality is it is a rather clumsy policy that, over time, randomly increases the value of the state pension when earnings and inflation are low.”
