Will the new Labour leader remove the pension triple lock?
Keir Starmer vowed not to touch the triple lock, a system that promises to increase the state pension each April by either the rate of inflation, average earnings growth or 2.5% – whichever is highest.
The triple lock guarantee saw over 12 million pensions receive a state pension boost in April, as it increased by a very generous 4.8%. This added £575 to state pensioner income this year.
Most pensioners saw their income increase more than non-pensioners, who are effectively funding the state pension.
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The Office for Budget Responsibility estimates the triple lock will cost around £15.5 billion by 2030, up from the £5.2 billion originally estimated when it came into play.
The triple lock was introduced by the Conservative-Liberal Democrat coalition in 2012. The Conservatives left it untouched and Labour, under the leadership of Keir Starmer, also promised to leave it alone.
The policy is hugely popular among state pensioners, making it a difficult policy for politicians to tinker with. But is a costly policy set up in 2012 still sustainable or fair today?
Will Andy Burnham, who looks likely to take the top spot in government later this month, finally axe the triple lock?
While Burnham’s focus is on devolution, he cannot escape the need to cut government debt. Pressure will inevitably mount for him to be the leader to finally stop placating pensioners.
What’s the problem with the triple lock?
Depending on who you ask, you may get a different answer. Steve Webb, who was the pensions minister when the triple lock was introduced, told me on the MoneyWeek Talks podcast that the triple lock was there to do a job to keep pensioners afloat.
“I became pensions minister in 2010. But in the previous 30 years, the state pension had been falling in value relative to what people earn, so it just went up with inflation most of the time.
“But the problem with that is if you earn and earn and then stop earning, then the thing you fall onto when you stop earning needs to be connected to some proportion of what you were earning. Otherwise, you just fall off a cliff and your standard of living crashes. So, the state pension needs to be pegged to a proportion of what people are earning and for 30 years, [prior to the triple lock] that had not happened.”
“So, the point of more generous indexation post 2010 was to undo 30 years of damage. I’m not embarrassed or ashamed; I am proud of the fact that the state pension has been over-indexed.”
But the working generation would argue the system is an unfair burden on taxpayers, especially as young workers doubt the state pension will even exist for them.
Pensioners will say they worked for it and the increase merely protects them from rising living costs.
Though, according to the think tank Resolution Foundation, the triple lock has done little to reduce pensioner poverty. In the 12 years following the introduction of the Triple Lock pensioner poverty rose by 2.3 percentage points.
Difficult choices for Burnham?
Former Labour leader Tony Blair and former Conservative chancellor Jeremy Hunt have both called for the ‘outdated’ and ‘unaffordable’ policy to go.
A report from the Tony Blair Institute earlier this year called for the triple lock to be cut by 2030 and to overhaul the UK state pensions system.
Though it is unlikely the new Labour leader will make any change during this parliament, he will need to make some difficult choices, eventually. Will Burnham be the man who finally takes the triple lock out?
