State pension triple lock costs £6bn a year

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The Government’s plan to protect the value of the state pension is costing £6bn a year, with warnings the costs could spiral further.

The Financial Times reports a warning from the Government Actuary’s Department was published last week, but deleted a day later, with officials telling journalists it had been published “in error”.

The study represented a stark warning on the cost of plans to upgrade state pensions by the highest of three rates – average earnings, inflation or 2.5 per cent.

According to the FT, the government acutuaries warn that since 2010, pensioners’ income was £10 a week higher than if it had been upgraded by earnings alone.

The policy is expected to add 9 per cent to total benefit spending by 2040 and 23 per cent by 2070. This could increase to 11 per cent in a scenario of low inflation and low income growth by 2040, and 41 per cent by 2070.

In an extreme “Japan deflationary” scenario, the triple lock could cost as much as 238 per cent more than an equivalent earnings-linked programme by 2070.

The report comes just over a month before the Chancellor is due to present the results of the latest spending review, alongside the Autumn Statement on 25 November.

The £6bn estimate marks a steep increase on previous estimates, with the Office for Budget Responsibility reporting in June that it expected the programme to cost £2.9bn in 2014/15.

The value of the programme, which David Cameron has guaranteed until at least 2020, has repeatedly come under fire, with Tory MP Liam Fox admitting the triple Lock is “difficult to justify” .