An architect of the triple lock has said the pensions pledge will not last forever on the day people receiving the state pension get a 8.5 percent boost. Sir Steve Webb, who was pensions minister in the coalition government and led major changes to the pensions system, told the BBC on Monday (April 8) that current increases in the state pension are just catching up on 30 years when the state pension was solely linked to inflation, noting that in one particular year pensioners famously saw a rise of only 75p.
Sir Steve, a partner at Lane Clark & Peacock, said: “This is a kind of correction going on at the moment. The triple lock isn’t forever. It’s doing a job of trying to restore the state pension which, by international standards, is still very low.”
While the state pension rises today, not all pensioners will get the same amount. Those who reached pension age after April 2016 receive the flat rate state pension, which today rises to £221.20 per week. But those who reached pension age before then start with the basic state pension of £169.50 per week, as well as any pension credits and top ups if their overall income is deemed to be too low.
Asked if there was an unfairness between the old and new systems, Sir Steve said: “The idea of the new system really was to try and simplify things and inevitably you get some rough egdes when you do that so we have a new system designed to be ultimately flat rate so people will know what they’re going to get. It won’t vary greatly from person to person and they can plan accordingly.
“Whereas under the old system, everybody’s different. Most people get a full basic pension, but then the extra amount on top depends if they’re in a company pension or not so the simplification of the new system does come with an element of rough edges but the idea is to make the system more predictable which helps people plan for their finances.”
He added that people on the new flat rate will get 8.5 percent linked to wage growth on the whole of their pension up to the flat rate figure while those under the old system will get the same percentage on the basic pension, which is a smaller part of their total income.
Sir Steve said: “That gap will grow. I guess one of the challenges is that for the people on larger pensions they’re more likely to be brought into income tax because tax thresholds have been frozen so for those people 20 percent could be clawed back by the Government.”
Institute for Fiscal Studies director, Paul Johnson, writing in The Times, described this generation of pensioners as lucky, benefiting from rising state pensions, occupational pensions and housing wealth increases.
Asked if it felt they were a “lucky generation”, Sir Steve said: “I think there’s a risk of looking at relatively large cash increases in the pension and thinking this is some bonanza. Over the last couple of years the headline new state pension has risen by about £35 a week and that sounds like a huge amount.
“But actually, all bar £4 of that is simply running to stand still. It’s coping with higher energy prices, food prices and so on. So that’s not a huge giveaway.”
Sir Steve’s comments came as the state pension and a raft of benefits rose on Monday, with people receiving the state pension getting a 8.5 percent increase worth an extra £900 a year to full rate claimants.
The Government billed the rise in the state pension as one of a number of measures aimed at backing Britain’s pensioners.
Mel Stride, the Work and Pensions Secretary, said: “Thanks to the triple lock and our efforts to drive down inflation, we are putting money back in the pockets of pensioners. This is only possible because we have stuck to our plan and our economy has turned a corner.
“This will make a meaningful difference to all those who rely on the state pension and ensure we continue to provide a safety net for those who need it most while making work pay wherever possible.”
The triple lock is a commitment to increase state pensions by whichever is highest of average earnings growth, CPI inflation, or 2.5 percent.
Among its other measures to help pensioners, the Department for Work and Pensions pointed to last year’s 10.1 percent state pension rise, which it claimed was the highest cash increase in history, plus winter support worth nearly £5billion.
The full state pension rate for last year was £10,600 and will rise to £11,500 a year. Ministers also pointed to the 2p cut to national insurance announced by Chancellor Jeremy Hunt at the Budget among measures to help households struggling with living costs.
But the Liberal Democrats claimed the extra pension support would be largely wiped out, as more pensioners are dragged into paying income tax as a result of threshold freezes.
