PENSIONSANDSAVINGS.COM

• It’s really important to protect pensioners – but is triple lock the best means of doing so?   
• Triple lock does not protect the poorest and oldest pensioners. 
• Moving to a double lock to increase State Pensions, including Pension Credit,  by best of earnings or price inflation would offer better protection. 

The Triple Lock on State Pensions was introduced in 2011 to protect pensioner incomes. Over many years, the Basic State Pension had fallen significantly behind general increases in income for the whole population and the Coalition Government committed to increasing State Pensions each year by the highest of earnings inflation, price inflation or 2.5%, which resulted in a welcome reduction in pensioner poverty over time.

The triple lock itself is a political construct, rather than an effective social policy tool. Unfortunately, it has become a totemic symbol of Government commitment to look after pensioners. This seems, to some degree, to have turned the ‘triple lock’ into a short-hand measure of policy for pensioner wellbeing.

However, the reality is that this policy has serious shortcomings. It fails to protect the poorest and oldest pensioners, while offering top protection to those who are still in their 60s, who reached pension age since April 2016. Indeed, the introduction of the new State Pension at that time has made the impact of the triple lock even less justifiable. If our aim is to protect pensioners, then surely national resources should be focussed on the poorest. But that is not how the triple lock works.

The triple lock only applies to the £134.25 old Basic State Pension.  This is received by those who reached state pension age before April 2016, i.e. the oldest ones who are already over age 70. The old state pension system paid two elements – a basic flat rate amount, plus additional earnings-related elements including State Second Pension (S2P) and the State Earnings Related Pension Scheme (SERPS). The full Basic State Pension is £134.25 and only that part is covered by the triple lock. The additional S2P and SERPS only increase in line with price inflation.

In contrast, the triple lock covers full £175.20 New State Pension.  The new State Pension, introduced in April 2016, joins together the old Basic and Additional Pensions into one payment. So, those reaching pension age since April 2016 can get a New State Pension of £175.20 which is fully covered by the triple lock. So, the youngest pensioners have £175.20 of their State Pension triple locked, but older pensioners only have £134.25 protected in this way – over £40 a week less protection.

Even more concerning, triple lock does not cover Pension Credit. Pension Credit is the payment which ensures those pensioners who are at most risk of poverty, can claim means-tested Pension Credit which tops up any State Pension or other income they are receiving to £173.75 a week. But this is not covered by the triple lock. Pension Credit only has to rise in line with earnings inflation, therefore excluding the poorest pensioners from triple lock top protection. If prices rise by more than earnings and if both are below 2.5%, Pension Credit for the poorest pensioners may fall behind other pensioners and the rest of society.

Of course we must protect pensioners, but is this triple lock the appropriate policy? Providing less protection to the least well off does not seem logical – and the 2.5% element does not have economic or societal logic. The rationale seems to have become entirely political. Of course it is vital to protect pensioners and I would hate to see any return to the widespread pensioner poverty that we have worked hard to overcome. However, with the introduction of the new State Pension, and after the latest crisis, it seems time to move on.

Government can consider a double lock to increase by highest of earnings or price inflation. A double lock would seem more justifiable in policy terms, ensuring state pensions rise in line each year with the best of earnings or price inflation. And this needs to apply to Pension Credit too.

The costs of the triple lock, in terms of the long-term budget forecasts, are significant. The triple lock adds significantly to the long-term cost estimates for state pensions. It may also lead to  further upward pressure on State Pension Age, which again can be detrimental to the poorest and least healthy older people in our society. If both earnings and prices increase by less than 2.5%, the costs of pensioner support add extra strain on our already over-extended public finances and there is clearly a trade-off between triple lock costs and pressure to save money by increasing State Pension age.

Will the latest crisis help reduce political attachment to this totemic policy? We absolutely must protect pensioners, who cannot increase their future earnings to make up for crisis periods. However, all policy decisions are likely to be revisited in light of this latest health and economic crisis.  It is important not to rush to hasty conclusions, but I do hope the political class and media commentators will consider the way the triple lock actually works and objectively assess whether it may have run its course. The following is a summary of the current system for single pensioners:

• Basic State Pension        = £134.25 a week – all pensioners reaching pension age before 2016 only have £134.25 of their State Pension protected by the triple lock. These are the oldest pensioners. They will normally have a Basic State Pension and also an additional state pension, related to their past earnings. These state pension payments beyond the Basic State Pension only have to increase in line with prices, so they are not protected by the triple lock.
• Full New State Pension = £175.20 a week – only pensioners reaching state pension age after April 2016 can claim the new State Pension which is fully protected by the triple lock and, as you can see, means they have much more protection than the older pensions.
• Pension Credit  = £173.75 a week – this is the income that the poorest pensioners will live on. If they don’t have other State Pension, or their state pension is below this level and they have no other income, then this is what they receive, but Pension Credit only has to rise in line with earnings, not the triple lock.

Government must commit to ongoing protection but is a double lock fairer all round? A double lock, which increases State Pensions and Pension Credit by the best of price inflation or earnings inflation, might be part of the answer.