Questions about the triple lock were asked at each of the main parties’ conferences recently. There is interest in whether a pledge will be made to sustain a policy that has proven to be very effective at raising the level of the state pension.
According to the Institute for Fiscal Studies, £11bn of the current annual state pension bill is attributable to the impact of the triple lock raising the level faster than inflation. An amount that is likely to increase in real terms before the end of the next parliament.
There is inevitably challenge to the amount of state pension paid with the triple lock at the epicentre
To date, it has taken 12 years of triple lock to add this £11bn into the annual state pension cost. Currently, welfare spending on pensioners runs to £140bn, so the triple lock represents less than 8% of that bill.
The main source of future increases in pensioner spending is the projected increase in the number of state pensioners. Over the next 10 years, the number of state pensioners is anticipated to increase by around two million people from the current figure of over 12 million people today, despite a timetabled increase in state pension age to 67 within this period.
So, there is inevitably challenge to the amount of state pension that is paid with the triple lock at the epicentre.
There would, of course, be an inevitable case of winners versus losers
In recent weeks, we have heard suggestions about whether cost savings can be found in other parts of pensioner spending. The objective being to maintain the triple lock while reducing spend on other pensioner benefits. If the finances were perfectly balanced, then all that would be achieved is a redistribution of pensioner spending. There would, of course, be an inevitable case of winners versus losers.
Firstly, it is worth reiterating who the triple lock applies to and to what extent. Nearly three quarters of state pensioners receive benefits under the old state pension system. It’s only from around 2029 that there will be more pensioners in receipt of the new state pension than the previous system.
For those who passed state pension age before 6 April 2016 on the old system, it is only their basic state pension that is linked to the triple lock. For these nine million pensioners they had an average pension receipt of £153 a week in 2020, of which around 21% relates to additional state pension amounts (SERPS/S2P) which are increased in line with CPI. So, the triple lock applied to an average weekly benefit of around £120 a week.
Younger pensioners stand to gain more in every year when the triple lock ratchet comes into effect
For younger pensioners who passed state pension age since the introduction of the new state pension, they have an average pension receipt of £164 a week in 2020, of which around 4% relates to protected payment amounts which are increased in line with CPI. So, the triple lock applied to an average weekly benefit of around £158 a week.
Younger pensioners stand to gain more in every year when the triple lock ratchet comes into effect. But beyond the immediate impact, that higher benefit level will be locked in as the basis for all future increases for the rest of their lives, and that effect also applies to working age people who have yet to start claiming the state pension.
The suggestion surfaced of introducing a means test to winter fuel payments, a universal benefit which this year will pay £500 to households aged under 80 and £600 to households aged over 80 (including a pensioner cost of living payment).
Such a measure would exacerbate this difference and make more older pensioners financially precarious
This has a somewhat different profile to the observed impact of the triple lock as this benefit is most significant to older pensioners. Furthermore, older pensioners have lower average incomes and are more likely to experience poverty than younger pensioners. Such a measure would exacerbate this difference and make more older pensioners financially precarious.
To give with one hand and take with the other to maintain the triple lock and retain the current targeting of pensioner welfare spending might require a much more careful alignment of the giving and taking. That is unless there is a deliberate ambition to alter the balance of pensioner welfare, both inter- and intra-generationally.
Tim Pike is head of modelling at the Pensions Policy Institute
