PENSIONSANDSAVINGS.COM

• Don’t abandon State Pension triple lock just because of one year’s figures. 
• Triple lock is not a sensible policy – it’s a political construct that has acquired totemic significance.   
• We need a comprehensive review of all aspects of pensioner support, not constant tinkering with parts of it. 
• Take the political meddling away and let’s have a sensible retirement income system for all.   

 

State pension triple lock is an inefficient policy tool, but has proved a really potent political one. The State Pension ‘triple lock’ has become a totemic symbol of Government support for pensioners and, as with so many other aspects of retirement benefits, politicians are always frightened of being seen to ‘take something away’ from pensioners. 

 

UK state pension is lowest in the developed world – it is not a generous amount:  It is also important to bear in mind that the UK pays the lowest state pension in the developed world. Millions of pensioners – especially women – rely solely on state pensions because they did not have the opportunity to build up private pensions when younger.  Of course, there are others who are extremely well-off in retirement, but that applies more to younger pensioners than the much older people.  This divide must be considered when making proposals for change. 

 

A comprehensive review of State pensioner support is needed, not political tinkering all the time: I think there should be a wholesale review of state pension income, with all the various parts considered holistically.  Over the years, politicians have added so many parts to pensioner support, originally introduced for political gain, but which then became a fixture.  These include tax free benefits like a Christmas Bonus, Winter Fuel Payments, Age Addition, free travel, free prescriptions, etc. These are all state pensioner income and have additional costs for taxpayers which are not well targeted. This complex patchwork of pensioner support has grown up over the years due to constant political meddling and needs an overhaul. 

 

There is great misunderstanding of how the triple lock works – it only protects two parts of the State Pension and benefits younger pensioners most, not the poorest:  The complexity of the state pension system has allowed a policy that does not offer top protection to the oldest and poorest pensioners, to become a voter yardstick of how much the Government values pensioners!  It only applies to two elements of the multi-part State Pension – the old Basic State Pension (paid to those over age 70 and currently £137.60 a week), and the full new State Pension £179.60 a week which is only paid to those who reached state pension age since 2016. Thus, the youngest pensioners have around £40 a week more triple lock protection than the older ones.   

 

Pension Credit for the poorest pensioners is not triple locked:  In addition to favouring the younger pensioners, the triple lock does not cover the poorest, who rely on Pension Credit. This is only legally required to rise in line with average earnings. All the other elements of the National Insurance state pension (such as SERPS, State Second Pension, deferred pension, additional pensions) only have to rise in line with cpi price inflation.   

 

Triple lock is not sensible, but it is the 2.5% element that makes no sense as a long-term goal – a double lock has merit:  The State Pension triple lock was designed to demonstrate that the Coalition Government was determined to support pensioners, even while other benefits were being reduced in the efforts to cut benefit spending.  However, it was never a sensible long-term policy.  But the part of the triple lock which makes no sense is the 2.5%.  Moving to a double lock makes more sense – ensuring pensioners receive the best of earnings or price inflation so they do not fall behind the rest of society.   

 

Wrong to abandon earnings link because of one year’s figures – with a double lock, pensioners would still receive the increase in average earnings: Even though the triple lock is imperfect as a means of pensioner support, especially for the poorest, just scrapping it because there is one year that seems out of line with expectations seems wrong.  The earnings increase in the three months to July is used to determine the rise in State Pensions next year, and could be as high as 8%.  However, removing the earnings link because of one year’s numbers would be yet another short-term politically-inspired reform to a policy that needs long-term and holistic reconsideration.  The problem is that any suggestion of changing a part of it raises fears of an ‘attack’ on pensioners. 

 

So I don’t believe we should remove the earnings link this year, but should review the whole structure of state pension support for the long-term future: A comprehensive, independent review of state pensions is required.  This could include considering rolling all the tax free add-ons into a better state pension. This would simplify the system, as well as raising money by making the current tax-free benefits taxable.  Political interference has left us with a state pension system comprising so many parts that nobody really knows what they will receive.  Removing short-term political meddling would also be a huge advantage in policy of the future.