Locked out: Does Govt dare back IDS and strip away pensioner benefits?


Politicians are unlikely to revisit mechanisms to hike state pension payments, despite two former ministers, including the architect of the policy, suggesting the current plans are unsustainable in the long-term.

Following his dramatic resignation as Work and Pensions Secretary last week, Iain Duncan Smith highlighted the triple-lock – which links state pension increases to the highest of earnings, prices and 2.5 per cent – as a source of intergenerational unfairness in need of reform.

In his first interview since resigning, Duncan Smith told the BBC’s Andrew Marr Show: “We have a triple-lock on pensions which I was proud to do six years ago, but with inflation running at zero, we really need to look at things like this and ask ‘do we just keep saying it’s working age [people] who bear the brunt?'”

And former pensions minister Steve Webb, who introduced the policy while in office, now suggests the measure was never intended to be permanent.

However, the Treasury says it has no plans to review the triple-lock, while both Labour and the Scottish National Party have confirmed it remains their policy on uprating of the state pension.

An erratic ratchet

Webb, now head of policy at Royal London, says Duncan Smith’s declarations are unsurprising.

“If you are Secretary of State for Work and Pensions you have a huge budget, but the majority of that is pensions and is largely off limits. So a 5 per cent cut is actually a 10 per cent cut, because you can only look at half your budget.

“You can see why he would like to look at his whole Budget.”

Despite being instrumental in the introduction of the triple-lock while in office, Webb admits the policy will likely be abandoned eventually.

It’s an erratic ratchet mechanism, but it was a way to make some clear progress.

“While you probably don’t want the triple-lock forever, doing it for a period remains the right thing to do.

“It’s an erratic ratchet mechanism, but it was a way to make some clear progress.

“I took the view that putting it into legislation would give it a longer term security, rather than having it reviewed after every five years,” Webb adds, though he declines to specify exactly how long the triple-lock should be in place for.


“At some point you would always repeal it. But first you would have to decide what the target should be for state pensions, and how much of a role it should be playing.”

Willis Towers Watsons senior consultant David Robbins says any judgement must compare the policy to its predecessor. In June 2010, prior to the introduction of the triple-lock, the state pension was linked to average earnings.


Figures published by the Office for Budget Responsibility alongside the Budget last week show earnings is likely to be the dominant factor in the uprating of pensions over its forecast to 2020/21.

Robbins says: “The point Duncan Smith has made is that inflation is zero, and therefore an increase of 2.5 per cent is a lot more than that. But the legislation doesn’t provide for just inflation-linked increases.

“And earnings were expected to be the dominant component for the remainder of this parliament. If that’s the case, then it doesn’t cost anything relative to the previous measures.”

Robbins adds: “The difficult thing is that the years when the triple-lock costs money are the years when economic conditions are not what we expect them to be.

“And the problem is the OBR forecasts will eventually be wrong, and when that happens it will cost money.

“The thing that is a bit odd about it is why would you say pensions should increase by more than average earnings, and that the extent to which they do so should depend on volatility in inflation?

Harrisview“Steve Webb’s defence has always been that they should be higher and this is a way to get it done. But I’m struggling to say why we would design a policy like that for the long-term. It’s a political slogan, not a policy.”

Grasping the nettle

Despite this, few expect politicians to grasp the nettle and seek to reform the policy.

Not least, Webb says, because the promise comes alongside increases to the state pension age.

He says: “You either pay a pathetically low pension early, or a decent pension at a later age. Both of those measures are part of a package of reform.”

Former shadow pensions minister Gregg McClymont, now head of retirement savings as Aberdeen Asset Management, says there is an argument that benefits like the triple-lock should be better targeted, rather than offered universally.

However, he adds: “The question is what would come to replace it? Because given where savings ratios are at the moment, a lot needs to be done to encourage those to improve.”

Hanover head of financial services Cameron Penny adds: “The reform argument has gained some currency in the last few days, and some people definitely want to look at it again, but it’s hard to think the current administration will.

“Pensioner poverty is still an issue for hundreds of thousands of people, and no politician will forget the position of 1999 when people were up in arms about a 75p increase to the state pension under Gordon Brown.”

“Targeting it better is certainly something the Government could look at in the medium to long-term, but I don’t think the triple-lock is something the Government will want to revisit any time soon.”

Robbins agrees: “While it’s only for this parliament that the Government is fundamentally committed to it, in practice it will be very hard for them to back out after that.”

Expert view

Arguments about reforming the triple-lock always come down to the old debate around targeted and universal benefits.

The difficulty is that once you start targeting it, you always generate unintended consequences. For example, does it provide a disincentive to save for those who might otherwise be included?

At the same time, the great advantage of a universal approach is it ensures the most needy get it, even if that also means those who are well-off get it too.

So when people query the triple-lock, the first question I always ask is how do you deliver that benefit better? After that we can think about what to do with the money which is saved.

Governments are always asking questions of these kinds of policies and pensioners are no longer by any means as a group the most likely to be in poverty, so I certainly have no objection to it being looked at.

The triple-lock will incur a pretty significant spend over the long-term, but that spend needs to be maintained, and that money needs to stay broadly in the pensions and savings arena, and perhaps work to encourage savings.

But it’s necessarily the most important thing in savings policy at the moment. We should be asking how do create the most efficient long-term savings proposition and then it can be part of that discussion.

Gregg McClymont is head of retirement savings at Aberdeen Asset Management