Government urged to scrap pensions triple lock

7 Nov 16

The state pension triple lock will increasingly skew the economy in favour of older people against the young and should be scrapped, the work and pensions select committee has said.

In a report published on Sunday, the committee said that retaining the system was “unsustainable” because it would lead to state pension expenditure accounting for an even greater share of national income, at a time of strained public finances.

Although the triple lock has made a valuable contribution to reducing pensioner poverty, it now essentially ring-fences the living standards of a specific demographic, which MPs said was unfair. It urged all parties to consider a new, more fair earnings link for the state pension, and proposes an alternative system.

The triple lock, which was introduced by coalition government, guarantees that the state pension will rise every year in line with wages, prices or 2.5%, whichever is highest.

However, a combination of economic and social changes have resulted in wealth being more concentrated in the older, property-owning generation. This has been caused by the rapid and sustained rises in house prices, which have left many young people unable to afford to buy a home and build wealth.

Also, a large demographic known as ‘baby boomers’, born between 1945 and 1965, are now reaching retirement. Since the taxes of working people support those who are retired in the form of the state pension, an ageing population therefore puts a strain on those who are working.

The report stated that in recent years, pensioners have been protected from public spending cuts, which have largely been borne by younger groups. Consequently, pensioner poverty has been drastically reduced. Today, average pensioner household income now exceeds that of non-pensioners after housing costs.

The millennial generation, born between 1981 and 2000, now faces the prospect of being the first in modern times to be financially worse off than its predecessors.

Committee chair Frank Field said the welfare state was underpinned by an implicit intergenerational contract, but that had become distorted.  

“Each generation is supported in retirement by their in-work successors. This is supported by all age groups, but a combination of factors has sent the balance out of kilter. It is now the working young and their children who face the daunting challenge of getting on in an economy skewed against them.”

All parties had the responsibility to address this issue, over and above political imperatives, he said.

“No party is immune from chasing the pensioner vote – but at what cost to future generations? Politicians of all stripes must accept some responsibility for these trends, and we must act together now to address them.

“It is time for the triple lock to be shelved.”

The committee proposed a ‘smoothed earnings’ link, to replace the existing system. During periods in which earnings lagged behind price inflation, an above-earnings increase would be applied to protect pensioners against a reduction in the purchasing power of their state pension.

This price indexation would then continue when real earnings growth resumes until the state pension reverts to a benchmark proportion of average earnings.

Field said this alternative system would be inter-generationally fair while protecting pensioners, allowing them to share the proceeds of future economic prosperity.

The committee is the latest group to call for the triple lock to be scrapped. Last year, Institute of Fiscal Studies director Paul Johnson called on the system to end as it was set to become “prohibitively expensive”.

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