The work and pensions select committee have again considered the future of the ‘triple lock’ pension guarantee. In a report on intergenerational fairness the committee advised that the government will need to move away from the guarantee at some point or face making major changes to the pension age (1).
The triple lock pension guarantee was introduced in 2010; it has ensured that pensions have risen every year since by whichever of the following is highest: the rate of inflation, average earnings increase, or a minimum of 2.5% (4). This policy has been hugely popular with pensioners and has been credited with lifting substantial numbers out of poverty (4).
Despite the success of the policy the increasing costs aligned with an ageing population has had many politicians and commentators concerned about the sustainability of the guarantee. The intergenerational fairness report claims that financing the triple lock in future would only be possible if the state pension age increases to 70.5 years (2).
The conclusion of the committee has led to many newspaper headlines focusing on the committee’s claim that “Making the triple lock sustainable would mean pushing the state pension age over average life expectancy in poorer areas of the UK”. (2) 70.5 is indeed older than the current average male life expectancy in some major cities including: Manchester and Birmingham and Bradford (3).
Frank Field, the MP who chairs the committee, said: “With the triple lock in place, the only way state pension expenditure can be made sustainable is to keep raising the state pension age. This has the effect of excluding ever more people from the state pension altogether. Such people will disproportionately be from more deprived areas and manual occupations, while those benefitting most will be the relatively prosperous.” (4)
Mr Field went on to say “By 2020, the state pension will be at a level where it will provide a decent minimum income for people in retirement to underpin private saving and any savings they have will be kept on top of, not clawed back from, the state pension. The triple lock will have done its job and it will be time therefore to retire it.” (4)
Despite the views of the select committee Ministers are showing no signs of abandoning their support for the triple lock pension, a government spokesperson said: “The government wants to ensure economic security for people at every stage of their life, including retirement. The triple lock has protected the incomes of millions of pensioners and we are committed to it for the duration of this parliament.” (1)
With such divergent views, the question of how to look after our pensioners in a financially sustainable way shows no sign of being answered soon.
The value of pensions and the income they produce can fall as well as rise. You may get back less than you invested.