PENSIONSANDSAVINGS.COM

4 January 2017

• Oldest and poorest pensioners are not protected properly by triple lock as it only protects two parts of State Pension
• Triple lock has kicked in for 2017/18 as earnings and prices rose by less than 2.5% but pensioners deserve proper protection, not just political gimmicks
•  Keeping triple lock in future gives more money to better off and younger pensioners
•  Healthier and wealthier pensioners get £200 a week State Pension by deferring while poorest and oldest get much less

Pensioners fall for politicians’ triple lock trick: Politicians have been using the triple lock as a lazy way of claiming to offer pensioners brilliant protection. However, delving more deeply into how it works, shows it is increasingly unfair.

The 2.5% element of the triple lock has kicked in for 2017/18: For 2017/18 the triple lock’s 2.5% was more than price inflation (cpi 1%) and earnings inflation (2.4%), so the 2.5% part of the triple lock kicks in – but only for two parts of State Pension – new State Pension and the basic State Pension of the old system. The other parts of pensions only have a link to prices and Pension Credit for the poorest pensioners is only linked to earnings so it will fall behind the new State Pension for the poorest pensioners.

Triple lock does not properly protect oldest and poorest pensioners: The triple lock is not protecting many pensioners. In light of the new State Pension system which started in April 2016, the triple lock leaves oldest and poorest pensioners relatively worse off, even though they need most protection. Older pensioners, who are on the old state pension will only have the basic State Pension protected – a maximum of around £120 a week, while newer pensioners have the full new State Pension of nearly £160 a week protected by the triple lock.

Triple lock policy impact seems the wrong way round: The much-trumpeted ‘triple lock’ on State Pensions has been used by politicians to pretend that pensioners are brilliantly protected. In fact, it is lazy policymaking, which seems to allow politicians to feel they are absolved from other needed measures to protect pensioners. The longer it is maintained, the more unfairness it will create.

Poorest pensioners on Pension Credit do not have triple lock promise: Pension Credit only rises in line with earnings. If the new State Pension (which is designed to always be above the Pension Credit level) remains triple locked, while Pension Credit only increases with earnings, then the poorest and oldest pensioners will become relatively poorer. The longer the triple lock stays in place, the more the State Pension favours younger pensioners and relatively disadvantages poorest pensioners.

Now is the time to consider better approaches to managing state pension costs than just keeping the triple lock and increasing state pension age: Government must consider how to manage State Pension costs more fairly than just continually increasing the State Pension age, which unfairly penalises people with lower life expectancy and long working lives. Realising the inefficiency and unfairness of the triple lock, and the problems created by continually increasing state pension age, can help improve the operation of state pension policy in future.

Healthiest and wealthiest over 65s can boost new State Pension to £200 a week: Under the new State Pension system, those pensioners who are in good health, have other income that pushes them into the 40% tax band or are still working, can choose to defer their State Pension and will get 5.8% extra for each year they delay. If they delay till they are 69 years old, they will get £200 a week. However, those who cannot afford to wait, or are in poor health, get much less.

New approach to State Pension needed from 2020: The Government should consider how to replace the triple lock promise from 2020 onwards, to prevent it from benefitting the younger and better off pensioners most. A double lock, increasing all parts of State Pension in line with the best of prices or earnings, would ensure pensioners keep up with the rest of society and the cost of living to prevent pensioners falling behind in future. And, of course, a double lock would still leave politicians free to increase more generously if they believe that is appropriate in any year.

NOTES:

Uprating for different parts of State Pension               Protected by             Rate of Increase 2017/18

Basic State Pension (max c.£122.30pw)                         Triple lock                   +2.5%

New State Pension (max c.£160pw)                                Triple lock                   +2.5%

Pension Credit (max c. £160pw)                                       Earnings                      +2.4%

Graduated Pension                                                             cpi                                +1%

SERPS                                                                                    cpi                                +1%

S2P                                                                                        cpi                                +1%

Deferral increases on State Pension                               cpi                                 +1%

Protected Payment for new State Pension                    cpi                                 +1%

Full triple protection does not apply to all elements of the State Pension: The triple lock means the maximum Basic State Pension for older pensioners rises by 2.5% for a single person, from £119.30 a week in 2016/17, to £122.30 a week in April 2017. However other parts of the old State Pension (Graduated Pension, SERPS, S2P) only increase by cpi price inflation, which is 1%. In contrast, the new State Pension (replacing the old basic State Pension, Graduated Pension, SERPS and S2P) will rise by the full 2.5% of the triple lock, from a maximum of £155.65 a week, to £159.55 a week from April 2017. Clearly, the triple lock promise gives much better protection to the newest pensioners – many of whom will still be working and are not those who need most protection in future.