PENSIONSANDSAVINGS.COM

• Will current crisis spell the long-overdue review of totemic state pension triple lock?
  
• Yes, Government must protect pensioners, but triple lock is not best way.
  
• Triple lock is more about politics than protection and does not properly cover over-70s.
  
• Reform of pensioner support as economy recovers likely to be on Treasury agenda as earnings and inflation numbers will be distorted by emergency measures.
  

Will current crisis reduce political attachment to totemic state pension triple lock?: The Government 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 the current 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, especially in light of the uncertainty over future earnings and inflation numbers.

If earnings and prices fall this year due to the crisis, State Pensions will rise by 2.5% under triple lock: There are fears that the current crisis could see earnings and prices falling during 2020. Under the triple lock, State Pensions would still rise by 2.5% while other benefits do not have such protection.

If earnings rise sharply next year as they bounce back from furlough, pensioners would gain from this too: If earnings fall sharply this year, then there is recovery next year albeit not back to current levels, the base effect would see a large rise in earnings inflation that would then benefit pensioners once more. The current crisis may therefore distort the way the triple lock works and sensible policymakers would be well-advised to review this policy urgently.

As Treasury considers public spending measures, triple lock is likely to require review: Given the potential distortions of earnings and inflation figures due to the exceptional crisis measures, it seems that review of the triple lock would be advisable. We do have the lowest state pension in the developed world, so pensioners clearly need protection, but in light of the current emergency, it seems to me the time has come to recognise that the triple lock has outlived its usefulness – and indeed its operation has become increasingly unjust.

Triple lock started in 2011 and was helpful at that time: The so-called ‘triple lock’ on state pensions was introduced in 2011 to protect pensioners’ 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 has resulted in a welcome reduction in pensioner poverty over time.

Politicians are frightened of changing triple lock, despite its flaws: Unfortunately, the triple lock has turned into a short-hand measure of political commitment to protecting pensioners’ wellbeing. That leaves politicians fearful of interfering with this totemic symbol of government commitment to look after pensioners. However, the ‘triple lock’ itself is a political construct, rather than an effective social policy tool. In fact, this policy has serious shortcomings.

Triple lock protects pensioners in their 60s, but not the poorest: Most politicians do not seem to realise that the triple lock doesn’t apply to poorest and oldest pensioners. Due to the complexity of the State Pension system and the way in which the triple lock has been applied to the different parts of pensioner income, the triple lock actually fails to protect the poorest while it offers top protection to those still in their 60s, who reached pension age since April 2016. Indeed, introduction of the new state pension has made the impact of the triple lock inequitable. If the aim is to protect pensioners, then surely national resources should be focussed on the poorest. But that is not how the triple lock works.

Triple lock protects just £134.25 a week Basic Pension for the over-70s, but £175.20 a week New State Pension for those still in their 60s: The triple lock only applies to the £134.25 old Basic State Pension, paid to those who reached state pension age before April 2016, i.e. the oldest ones who are already over the age of 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), with the additional elements only increasing by price inflation. The New State Pension, merges the old Basic and Additional pensions (SERPS, S2P etc) into one New State Pension payment up to £175.20 a week, which is fully covered by the triple lock. Therefore, pensioners over age 70 have £40 a week less of their pension protected.

Triple lock does not apply to Pension Credit for the poorest pensioners at all: Even more concerning, is that the triple lock does not cover Pension Credit, which is designed to help those pensioners most at risk of poverty. Pension Credit tops up any state pension or other income they are receiving to £173.75 a week. It 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.

Providing less protection to least well off and arbitrary 2.5% element seem illogical: The 2.5% element does not have economic or societal logic, but was introduced in 2011 to give a controllable way of improving the state pension over time. But pensioner poverty rates have declined, so 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 in light of the latest crisis, it seems time to reconsider.

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. The current emergency may add further to the costs. 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.