Scrapping triple lock ‘will not curb state pension costs’

13 Dec 16

Ending the triple lock on state pension increases will only lead to small savings for government and would not end the pressure for above-inflation increases, pensions consultants Hymans Robertson has claimed.

Following indications by chancellor Philip Hammond in last month's Autumn Statement that the government would review the triple lock in the next parliament, consultants examined what the cost to government had been.

The triple-lock guarantees that pensions will rise by the same as average earnings, the consumer price index, or 2.5%, whichever is highest.

According to Hymans Robertson, the cost of this policy to government has been in the region of £1.8bn – £2bn. This is because there have only been three years since 2010 (2013, 2015 and 2017) where the 2.5% underpin has applied. The triple lock updated the policy of the previous Labour government from 2001 which increased the state pension each April by inflation or 2.5%, whichever was the higher.

Hymans Robertson highlighted that, even without the triple lock, state pensions would still need to increase faster than inflation or earnings as many people are not saving enough for retirement.

The cost of the pledge to government will remain substantially less than the £8bn saved by the introduction of the new single tier state pension, the review highlighted.

Chris Noon, a partner at Hymans Robertson, said the motivation to return to the former policy of double lock would be based on short-term cashflow considerations. 

“It will come with big political risks, but more importantly the cost savings to government will be insignificant in the context of the pressure building on the state pension due to huge savings shortfalls,” he stated.

“As a nation people are not saving enough for retirement. Three quarters of defined contribution savers will not be able to retire on an adequate income. The pressure on the state will increase considerably as we see greater numbers retire with DC pensions over the coming years as large numbers of these people will not have enough to live on in retirement.”

There was therefore a need for consistent long-term policy, he added.

“We need to truly incentivise savings rather than tinker with the system, kicking the can down the road for future generations to deal with.”

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