State pensioners are set to be handed up to £1,700 in the next five years thanks to the state pension triple lock – but the money could be at risk in future.
The triple lock will see pensioners given at least an extra £1,700 by 2029 including £460 from next April.
This is just an estimate though, and the real final number is likely to be even higher by 2029.
That’s because the triple lock works by automatically increasing state pension payouts by one of three metrics each new financial year: to match wage growth, to match inflation, or just a flat 2.5 percent, whichever of these three is the highest.
This coming year, for example, the £460 boost is based on wage growth of 4.1 percent, far above the minimum baseline for increases.
But although Labour has promised in its manifesto to keep the triple lock in place, fiscal experts are warning that the policy could be at risk in future.
Given the level of outcry about the scrapping of the Winter Fuel Payment, any changes to the triple lock are sure to be met with fierce opposition.
The Office for Budget Responsibility has previously identified the triple lock as a “fiscal risk”. This is due to its so called ‘ratcheting effect’, which leaves public finances exposed to higher pension costs.
The Institute for Fiscal Studies says that the triple lock makes planning the government’s finances difficult because the combination of its three components is difficult to forecast, as is the exact number of recipients with a full National Insurance record claiming the full state pension, and the number of years they will be claiming for.
Their current estimates for spending on the triple lock by 2050 range from £5 billion to £45 billion per year due to that uncertainty.
If the triple lock is changed in future, the Financial Times has argued that linking State Pension increases to earnings growth alone is fairer and more sustainable than the triple lock – a ‘single lock’ linked to wage growth.
According to the House of Commons Library, The Organisation for Economic Co-operation and Development (OECD) has suggested that pensions should be uprated by an average of earnings growth and CPI inflation, alongside additional means-tested support for poorer pensioners.
Sir Steve Webb, the former Pensions Minister who oversaw the introduction of the triple lock, suggested that the policy could be removed once once the State Pension reaches a “reasonable” share of average earnings, a system he called the ‘double lock’.
He told the i: “Once the state pension is a reasonable share of average earnings perhaps around a third you could then have an earnings link or a double lock.”
“When we started in 2010, the pension had been linked more-or-less to prices for 30 years. This resulted in things like the notorious 75p a week pension rise in 2000, followed by £5 in the year of 2001.”
“If you think about the purpose of a pension it is to preserve your standard of living when you no longer have a wage. If pensions are linked only to prices, and assuming wages generally rise faster, this would mean that the state pension falls steadily as a share of your pre-retirement income, and therefore becomes less and less adequate to do its job.”
