Sir Steve Webb, the former pensions minister, says every political party wants to get rid of the triple lock
Inside the pensions crisis
Retirement feels more uncertain than ever, with nearly six in 10 adults unsure if they have enough time to save for a pension. Successive governments have struggled to address the issue. So, how did we get here, and what can be done to fix it? The i Paper brings you the essential stories on what went wrong with pensions, along with expert insights into the policies and solutions that could help secure your financial future.
Read more: Why the state pension triple lock is closer to being axed than you think | Teachers blocked from swapping big pensions for higher wages
“No one imagined” the triple lock – one of the most expensive pieces of policy ever introduced – would still be in place now, says Sir Steve Webb, the man responsible for overseeing its launch.
On its 15th anniversary he told The i Paper if you speak off the record to any senior politician they will tell you the triple lock needs to be retired immediately.
“Every party wants to get rid of it,” explains Webb. “But everyone is terrified to be the one to turn the switch off as they will be blamed.”
When pensions minister in the coalition government between 2010 and 2015, he oversaw the launch of autoenrolment – which means more than 10 million people now have a pension than had it not existed – and also helped give life to the triple lock.
But Webb adds that it was not to be a long-term solution, as “at the time we were making policies designed for the five-year lifespan of parliament”.
Now estimated to cost the government an extra £11bn a year – compared with if the pension had increased in line with either prices or earnings between 2010 and 2023 – it guarantees that state pensions will rise out of the highest of inflation, average earnings growth, or 2.5 per cent.
If left unchecked, the costs could balloon to up to £45bn by 2050, according to the Institute for Fiscal Studies (IFS).
Many experts argue that keeping the triple lock is unsustainable. However, faced with people telling him the triple lock is unaffordable, Webb’s reply is: “Well how come countries poorer than us in Europe can afford better pensions than us?”
“For me it’s about priorities, and I think a decent income in retirement is a priority”.
Expert arguments against the triple lock
Cost is the main argument against having the triple lock, having so far cost more than £100bn in its lifetime.
Clarity over the amounts paid – and the ability to plan for retirement – is another issue, as speculation over its long-term future and the age at which the state pension kicks in can create confusion.
Additionally, there have been continuing concerns about younger people having to bear the burden of paying for older people to retire – however any changes would take years to come into effect.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “At a time when an increasing state pension bill is being borne on the shoulders of a smaller working population there have been calls for a more balanced approach.
“The state pension forms the backbone of people’s retirement income and people need certainty as to what they are going to get and when. Constant rumours about increasing state pension age and means testing undermines this. With this in mind, the state pension – and the triple lock’s role with it – should be considered as part of the review into adequacy to make sure the state pension is put on a sustainable long-term footing.”
Tom Selby, director of public policy at AJ Bell, added that “while the triple lock has undoubtedly been successful and remains popular among voters, the aimless nature of the policy is problematic, as is the fact politicians now blindly commit to it as though maintaining the triple lock means they are “doing right by older people”.
“The way the triple lock is applied currently is also problematic. Because the DWP uses inflation or earnings at a specific point in time, it can result in huge rises in the state pension when earnings or inflation spike in a particular month – something we have seen in the last few years.
“That created a significant cashflow drain on the Exchequer and is a risk the Treasury could mitigate by exploring using smoothed earnings or inflation pegs over, say, a five-year cycle.”
What will happen to the triple lock?
Webb, who is now spokesperson for LCP pension advisory, believes it may be scrapped or amended in the next parliament if Labour remains in power given the party is less reliant on the pensioners vote.
The upside, if there is one, of shedding older voters as a result of scrapping the winter fuel allowance is that you can break the triple lock without fearing those lost votes.
He doesn’t believe it is job done for the triple lock yet in terms of making the state pension substantial enough for a decent retirement.
He thinks the state pension should pay a third of average wages for working people, a point that is not too far away – with the new state pension at roughly 25 per cent of earnings as of April 2022.
Once this happens, pensions can go back to being a single lock going up in line only with average wages in his view.
Selby said: “We need a broad review of the state pension covering the amount people should receive and the age at which people should receive it. This needs to be done on a cross-party basis to give people a bit of certainty about the future.
“Once that’s agreed, a plan can be put in place to raise the state pension to a ‘fair’ level (assuming that is indeed a level that is higher than today), with a more sensible system for annual increases – linked to either inflation or earnings or both – in place for the long term.
“Without this, state pension policy will continue to revolve solely around whether or not a politician or political party is willing to swear an oath of allegiance to the hallowed triple lock.”
Jon Greer, head of retirement policy at Quilter, added: “One potential reform is to link increases to earnings with a temporary Consumer Prices Index (CPI) indexation.”
This is when the state pension is pegged to a fixed minimum proportion of average earnings.
If the CPI measure of inflation exceeds wage growth, pensions would temporarily be adjusted based on the measure of inflation. Once earnings growth again exceeded inflation, it would revert back to this measure.
MGreer added: “This ensures that pensioners’ income doesn’t lose value during periods of high inflation.
“Any change must be handled carefully. The state pension is the single largest area of welfare spending and a vital source of income for millions. But if Labour is serious about building a fairer and more sustainable system, it cannot ignore the long-term pressures the triple lock presents.
“The review must consider the triple lock not in isolation but as part of a wider retirement strategy that balances support for today’s pensioners with fairness for future generations. The political risks are clear, but so too is the economic case for reform.”
Inside the pensions crisis
The i Paper brings you the essential stories on what went wrong with pensions, along with expert insights into the policies and solutions that could help secure your financial future.
Teachers blocked from swapping big pensions for higher wages. A trust of nearly 100 schools planned to offer teachers the chance to take home higher pay in return for smaller pension contributions from April, but has been stalled after a Government intervention. Click to read.
Why the state pension triple lock is closer to being axed than you think. Labour MPs are starting to go where few politicians fear to tread – discussing reform of the state pension triple lock. Click to read.
