The pensions triple lock is looking like valuable political property as the UK General Election approaches. That’s because Theresa May has failed to give a Conservative undertaking to keep the triple lock, and campaigners for its protection argue that it needs to stay in place to keep pensioners out of poverty.
The Conservative Party has said it will publish its proposals for the triple lock in early May. The Labour Party has pledged to keep the pension triple lock till 2025 and the Scottish Nationalists have pledged to keep it indefinitely.
But should it stay at all? And why is the pension triple lock such a big deal?
What is the pension triple lock?
The triple lock is an agreement relating to UK state pensions going back to 2010-11. The agreement pledges that the financial sum given to each pensioner each year will rise annually by the highest rise out of the following three indexes:
- Rise in prices – ie inflation (CPI)
- Rise in average full-time earnings
- An arbitrary minimum rise of 2.5%
The pensions triple lock was designed by Steve Webb, the former Liberal Democrat pensions minister. He has recently suggested that it be applied only to older pensions receiving basic state pension and not those receiving the new state pension.
What’s the issue with the triple lock?
The triple lock is attacked for adding £6bn a year to state pension spending as well as giving rises to the older generation without doing so in equivalent areas for the younger generation (like child benefit and tax credits). Critics of the triple lock fear that, to support it in the future, the State Pension Age will have to rise. And the structural problem with the triple lock has been identified as one element in particular – the arbitrary price rise of 2.5%. This, critics say, is a historical artefact of the original legislation that has no relevance – and it’s costing money.
What is likely to happen if the triple lock gets scrapped?
If the Conservatives remain in power, it has been reported that they plan to downgrade the triple lock to a “double lock” which cuts out the minimum 2.5% price rise.
A double lock means pensions rise with the higher of earnings or inflation. That means that, if earnings don’t rise and inflation don’t rise, pensions won’t rise either.
Former Pensions Minister, Baroness Altmann supports the double lock on the basis that the triple lock adds £15bn to the cost of long-term pension provision and that the 2.5% minimum rise – that distinguishes it from a double lock – is only “a political construct, with no economic or social logic.”
What has the triple lock done for pensioners?
Before the triple lock, the state pension was in line with inflation (RPI) but lagging increasingly behind earnings in the country.
Progress has been made thanks to the triple lock. “There is no doubt the triple lock has led to a material increase in the state pension” says the FT. The state pension, the FT says, was 16% of average earnings in 2008 but now stands at roughly 18.5%.
The Institute for Fiscal Studies reports that “between April 2010 and April 2016 the value of the state pension has been increased by 22.2%, compared to growth in earnings of 7.6% and growth in prices of 12.3% over the same period.” That’s a rise in pensioner income twice that of worker income.
Theresa May says that the state pension is – thanks to the triple lock – now worth £1,250 a year more than it was in 2010. The basic state pension comes in at £122.30 a week. In 2010-11 the basic state pension was £97.65 a week.
So what would have happened if the triple lock was not in place?
- If the state pension had risen by CPI over the same period, it would be worth roughly £113 a week.
- If the state pension had risen only by average earnings over the same period it would be worth roughly £112 a week.