The state pension is becoming a key battleground in the general election, with much debate focused on the future of the “triple lock” protecting pensioner incomes. FT Money looks at what the parties are saying about the triple lock and whether the guarantee has a future.
What is the triple lock?
It is a guarantee that the state pension will rise by the higher of prices, average earnings or 2.5 per cent. The pledge applies to the basic state pension, both for those who reached state pension age (SPA) before April 6 2016, and the new state pension, for those retiring after that date.
What’s the problem with the triple lock?
The triple lock was introduced in 2010, a few years after the UK state pension had slumped to its lowest level as a proportion of full-time average earnings. But the measure has been the source of much intergenerational friction as it is more generous than the uprating policies for working-age benefits, tax credits and child benefit. State pension spending is estimated to be £6bn a year higher because of it, according to the government actuary’s department.
What effect has it had?
Theresa May said the state pension is worth £1,250 a year more today than it was in 2010-11, thanks to the triple lock.
The basic state pension is £122.30 a week or £6,359 a year. In 2010-11 it was £97.65 per week or £5,077 a year.
Had the state pension been uprated by the consumer prices index (CPI) over the same period, it would be worth about £113 today or £5,925 a year. If it had been uprated by average earnings alone, it would be worth about £112 per week or £5,820 a year.
Has the triple lock done its job?
There is no doubt the triple lock has led to a material increase in the state pension. In 2008, the state pension was 16 per cent of full-time average earnings; after seven years of the triple lock it has risen to about 18.5 per cent today.
But the National Pensioners Convention, a campaign group, argues that the measure needs to stay, since one in six pensioners still live below the poverty level and millions more have an income of less than £11,500 a year.
The UK’s state pension is still considered one of the lowest of the OECD’s 35 member countries.
What are the parties promising?
Labour has pledged to legislate to keep the triple lock in place up to 2025. The Scottish Nationalists have made an open-ended pledge to keep it.
The Conservatives have refused to renew their commitment to the measure. Mrs May said only that under a Tory government, “pensioner incomes will continue to increase”. The Tories will set out their plans in their manifesto to be published on May 8.
What will happen to my pension if the triple lock is scrapped?
It has been reported that the Conservatives are considering downgrading to a “double lock” under which the 2.5 per cent element would go. Instead, both the basic and new state pension would rise by the higher of earnings or prices.
Experts say the cost of keeping the triple lock depends on how pensions would be uprated without it.
“By law, the basic state pension and new state pension have to rise at least in line with national average earnings growth,” says David Robbins, senior consultant with Willis Towers Watson, a professional services firm.
“Against this benchmark, the triple lock only leads to bigger pension increases when earnings growth is below CPI inflation and/or 2.5 per cent,” he says. “On the central forecast used for public finance projections, it appears that this would not happen at any of the relevant moments in the 2017-22 parliament.”
Baroness Altmann, a former pensions minister, has argued in favour of a double lock.
“The longer the triple lock lasts, the greater the future cost will be, with official forecasts predicting it will add at least £15bn to the long-term cost of state pension provision,” she says. “The arbitrary 2.5 per cent figure is a political construct, with no economic or social logic.”
Sir Steve Webb, the former Liberal Democrat pensions minister who designed the triple lock, has recently suggested it be modified so it applies only to older pensioners receiving the basic state pension, not those receiving the new state pension.