Both Labour and Tory leaders say the policy is here to stay, but not everyone is happy
With a general election looming next year, the major political parties have committed to keeping the controversial “triple lock” system on state pensions, even as payments may be set to soar.
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The triple lock is a policy that was introduced in 2010 under the coalition government. It is designed to help protect pensioners’ incomes by increasing the state pension in line with average wages, at the highest rate of inflation, or by 2.5%, whichever is higher.
Work and pensions secretary Mel Stride has said the policy would “almost certainly” be in next year’s Tory manifesto, reported The Times, and a spokesperson for Labour leader Sir Keir Starmer has also said the party is committed to it.
The increase is determined by inflation figures each September and is then implemented at the following April, at the start of the tax year. With inflation remaining “stubbornly high”, said interactive investor, pensioners could see a 7% increase in their payments from next April based on Bank of England forecasts.
This creates a potential divide amid the cost-of-living crisis between “soaring pension payouts and workers’ salaries”, said MoneyWeek, adding to the debate around whether the government should continue to fund the “expensive” triple lock mechanism.
Why is the triple lock so controversial?
There are “issues and challenges” around funding the triple lock, explained Unbiased. Department for Work and Pensions (DWP) spending on the triple lock has increased from £69.8bn when it launched in 2010 to £104.9bn in 2021/2022, making it a “politically emotive” subject that, considering the ageing population and falling birth rate, won’t go away any time soon.
Economists often criticise the triple lock as being “too expensive to maintain”, said The Times Money Mentor, with about 60% of welfare spending going towards pensioners. Critics suggest there is “intergenerational unfairness”. Should younger people “subsidise the income of older people at a time when they may be struggling with their own living costs”?
However, many pensioners are reliant on these payments, Becky O’Connor, director of public affairs at PensionBee, told the i newspaper. “They don’t get pay rises or have the option of getting a higher-paid job, and the higher cost of food and energy has a disproportionate impact on retiree households because, generally speaking, these costs make up a higher percentage of their spending.”
By how much could the state pension rise?
State pension payments rose by 10.1% in April 2023. Those on the full new state pension saw their payments rise from £185.15 per week to £203.85.
Meanwhile, the Bank of England’s inflation forecasts suggest inflation could be 7% by September. This would equate to a £700 annual increase, said LoveMoney, from £10,600 to £11,342.
There are warnings that funding these increases could push inflation up further.
“If it is financed by borrowing lots of money, then it is likely to be inflationary,” Jonathan Cribb of the Institute for Fiscal Studies thinktank told the Daily Telegraph. He warned the government would have to raise taxes and cut spending to prevent this.
What is the alternative?
The government could suspend the triple lock if necessary. It temporarily removed earnings from the equation in 2022-23 due to a “post-lockdown spike in wages”, explained NerdWallet, and increased the state pension by the inflation measure of 3.1% that year.
Former pensions minister Baroness Ros Altmann has called for a “double lock”, which would guarantee an increase of either inflation or average wages.
A more “pessimistic scenario”, added Unbiased, would be for the state pension to have only a single lock, linked either to wages or inflation, but this may mean pensioners’ spending power is reduced over the medium to long term.
The worst-case scenario would be returning to when the state pension was “simply made at the whim of the chancellor”, the financial website added.
“Any party that says it is getting rid of the triple lock, well, that will play badly. It is a litmus test for the grey vote,” Jan Shortt, the National Pensioners Convention general secretary, told The Independent.
Marc Shoffman is an award-winning freelance journalist, specialising in business, property and personal finance. He has a master’s degree in financial journalism from City University and has previously written for FTAdviser, ThisIsMoney, The Mail on Sunday and MoneyWeek.
