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MPs call on Govt to scrap triple lock

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The state pension triple lock should be dropped, the work and pensions select committee of MPs has argued.

Announcing the results of its inquiry into inter-generational fairness, the committee said that while the triple lock – which has uprated the state pension by the highest of inflation, earnings or 2.5 per cent every year since 2012 – had “made a valuable contribution in increasing the relative value of the state pension”, it would cost too much to maintain.

The report reads: “Its retention would…tend to lead to state pension expenditure accounting for an ever greater share of national income. At a time when public finances are still fragile, this is unsustainable.”

It adds: “The retention of the triple lock would not be intergenerationally fair. We urge political consensus before the next general election on a new earnings link for the state pension.”

After being re-elected last year the Conservative government pledged to retain the triple lock until 2020. The policy has ardent supporters including former pensions minister Steve Webb, but has been opposed by others including the immediate former pensions minister Ros Altmann.

State pension expenditure is currently around 5.5 per cent of GDP. Without increasing the state pension age any more than is already planned, the Office for Budget Responsibility predicts this will rise to 8 per cent by the mid-2060s.

The committee recommends replacing the triple lock with an earnings linked system.

The report says: “We recommend the Government benchmark the new state pension and basic state pension at the levels relative to average full-time earnings they reach in 2020. The triple lock should then be replaced by a smoothed earnings link.”

The committee adds that indexation should still protect pensioners from the impact of inflation however.

It adds: “In periods when earnings lag behind price inflation, an above-earnings increase should be applied to protect pensioners against a reduction in the purchasing power of their state pension. Price indexation should continue when real earnings growth resumes until the state pension reverts to its benchmark proportion of average earnings. Such a mechanism would enable pensioners to continue to share in the proceeds of economic growth, protect the state pension against inflation and ensure a firm foundation for private retirement saving”

Provider reaction

AJ Bell senior analyst Tom Selby says that the future of the triple lock looks “bleak” in light of the committee’s findings.

He says: “Margaret Thatcher’s decision to scrap the earnings link for the state pension in 1980 was seen by many as an attack on pensioners. The triple lock has at least partly restored some of the value that was lost during that 30-year period. However, it was never meant to be a permanent measure and costs the Exchequer billions. The Government will be wary about hitting pensioners ahead of the 2020 election – and breaking its manifesto promise in the process – but beyond that the triple-lock’s future looks bleak.”

However, Hargreaves Lansdown head of retirement policy Tom McPhail  notes that politicians will be way of ditching the triple lock for fear of losing votes from retirees.

He says “Politicians are chronically compromised when making any policy decisions which might be detrimental to older citizens. You only have to look at the turnout in general elections to understand why: 78 per cent of the over 65s voted, compared to just 43 per cent of the eligible under 25s. The triple lock has served an important function in bringing pensioner incomes back into line with the rest of the population.”

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Comments

There are 9 comments at the moment, we would love to hear your opinion too.

  1. Turkeys voting for Christmas?

  2. Part of Tom McPhail’s quote sums up one of the reasons why we desperately need an independent pensions commission… pension policy is swayed by the demographic of voters and a party’s desire to win votes and remain in power. Instead we need a system where pension policy is based on the long-term needs of the whole population.

    • Melanie Prendiville 7th November 2016 at 10:53 am

      I worked for 53 years and paid 1st Class NNI Contributions – I live on my own and my State Pension is a disgrace – I started off at 65 with £303 per month and now I get the additional payment of Pension Credit £228 added on which gives me a State Pension of £503 per month – We have the worst State Pension payments for people who worked all of the lives and had payments taken at source PAYE. I would be getting double if I had worked for 53 years in France
      or Germany. I laughed when I got the increase of 75p before the triple lock was introduced.
      Frank Field is a disgusting anti poor and pensioner hater. He lives a life of luxury in Westminster
      lucky him – he will get a tax payer funded final salary pension!!

  3. Andy Robertson-Fox 7th November 2016 at 11:50 am

    I must confess I would have more faith in the findings of this select committee if one of their number, Heidi Allen, exhibited a better grasp of the NI system. When invited to sign an Early Day motion calling for the abolition of the Frozen Pension Policy she displayed her ignorance by relating, on her web page, the making of contributions while working overseas affecting one’s UK pension and totally missing the point that the EDM was about the denial of index linking and the annual up-rate of pensions……and despite having her faux pas drawn to her attention she still has done nothing to explain herself.
    Of course, whether the triple lock survives or is replaced by some other formula the injustice of the policy will remain if the frozen pensioner continues to be excluded.

  4. The unfunded government pension schemes should be looked at first. This liability which does not form part of the national debt is probably well in excess of the national debt. Falling annuity rates and the closing of final salary schemes means the old age pension is going to be more important going forward. In Jan 1995 £100,000 pension pot bought approx £11380 PA, in Jan 2013 this bought only £4920 PA. These are not indexed linked. I expect the MP’s scheme may be a little different!!. Perhaps the MP’s should only have the average pension pot at age 65. I expect a better pension scheme would soon be found.

  5. Familiar and toxic – lets make most people equally poor. What a shabby idea.

  6. The constant tinkering with the state pension should stop….now. Politicians like Heidi Allen, who via her website, displays total ignorance as to how the state pension works (or doesn’t work for some) should not be allowed to interfere with the paid for income of seniors. Just because one is voted to be a politician doesn’t automatically endow these people with expert knowledge in pensions. As for the frozen 4%, no triple lock for them….ever… and it’s way past time this injustice was corrected and in this case a politician does not need to be an expert to do this particular job, he/she just needs to know right from wrong and when discrimination is being used to deny a few pensioners their rightful indexing and stand up and do the right thing. But that would take a backbone….something else mere politicians are not endowed with.

  7. Women whose pension is delayed: Over half a million whose pensions are frozen for life (and those pensioners in the EU tottering on the same brink); and now the Triple Lock (as it stands) to be scrapped. What a mess!! Constant tinkering leaves UK with no confidence as they draw closer to retiring.
    This committee has tried to justify its recommendation with statistics and fashionable millennium talk. The problem is its expertise is questionable (see previous comments from Jane Davies & Andy Robertson Fox) so how can we accept its findings without argument?
    In a word, we can’t!
    We also can’t accept the lie that uprating pensions worldwide cannot be done. Particularly when every Gov reason for not uprating (inc justification) can be shot down in flames. Perhaps Frank Field’s “Select Committee” can come up with something new – but it certainly won’t be believable.

  8. Please excuse my mistake!! “Constant tinkering leaves UK with no confidence as they draw closer to retiring.” should read “Constant tinkering with UK pensions leaves people with no confidence as they draw closer to retiring.”

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