State Pension triple-lock should be scrapped
MPs on the Work and Pensions Committee are calling for the arrangement to be scrapped, saying that continuing with it would be “unfair and unsustainable”.
The triple-lock guarantees that State Pension incomes rise each year by the highest of average earnings, the consumer prices index (CPI) measure of price inflation, or 2.5%.
As a result of this triple-lock, the State Pension has risen by £1,100 since its introduction in 2010. In April this year, the State Pension rose by 2.9%.[tweet_box]Should the State Pension triple-lock be scrapped from 2020?[/tweet_box]
Frank Field, chairman of the Work and Pensions Committee, said:
“At the same time as tightening their belts, they are being asked to support a group that has fared relatively well in recent years,”
“Millennials face being the first generation to be poorer than their forebears.”
It says retaining the triple-lock would lead to State Pension expenditure accounting for an ever greater share of national income: unfair and unsustainable, and more so in times of fragile public finances and economic uncertainty.
Accelerated increases in the State Pension age, an alternative means of making the State Pension more fiscally sustainable, would disproportionately affect the young and those socio-economic groups – already worse off – with lower life expectancies in retirement.
The Committee proposes a smoothed earnings link for the State Pension.
The new State Pension would have a benchmark proportion of average earnings below which it could not fall.
By 2020, the level of the new State Pension will be close to historic highs for the headline rate and above the means-tested minimum. It is, according to the Committee, a solid foundation for personal saving.
If inflation exceeded earnings growth, the purchasing power of the State Pension would be protected by price indexation. This price indexation would continue once earnings growth again exceeds inflation until the state pension is again at the benchmark level.
According to the Committee, this is fiscally sustainable (unlike a simple double lock, which would mean the value of the state pension continuing to grow relative to the rewards of work, especially during times of economic difficulty) but fulfils the objectives of supporting pensioners who would share in the proceeds of growth and get protection against high inflation.
The new State Pension is worth £155 a week for those who qualify for the full amount, and this represents around 24% of average earnings.
The government has confirmed it is committed to the triple-lock until at least 2020.
A spokesperson for the Department of Work and Pensions said:
“We want to ensure economic security for people at every stage of their life, including retirement.
“We are committed to the triple lock which is protecting the incomes of millions of pensioners.”
The Committee is calling for all parties to seek “political consensus on a new earnings link for the state pension” before the next general election.
Whether political parties can achieve consensus on this political hot potato will be interesting to see.