There’s been a great deal of recent speculation about the future of the pensions ‘triple lock’ and whether, owing to the unusual economic circumstances the UK finds itself in, it could be suspended or even scrapped.
Notwithstanding that it is a 2019 Conservative manifesto commitment, there’s a real possibility it could be changed, so it's important to reconsider the original reasons behind the policy and its impact.
The triple lock explained
The triple lock, the policy commitment by which the Government raises the State Pension annually in line with the highest of increases in prices, average earnings, or 2.5%, was announced by the Coalition Government in 2010 in recognition that the real value of the basic State Pension had fallen over many years. It applies to the new State Pension for post April 2016 pensioners, and the basic State Pension for older pensioners (but not to other elements of the old State Pension system).
The pensions minister at the time made it clear that the triple lock was part of a package of reforms including the rise in State Pension age – so while people would have to wait longer for their pension in the future, once in payment it would be increased. Even so, this doesn’t mean that over the course of retirement pensioners become better off – often other sources of income diminish - private pensions can lose value over time, savings may get used up, and many face bereavement and a big drop in income.
Pensioners living in poverty
Since it was first used as the uprating mechanism in 2012, the triple lock has increased the value of the pension. However, although the State Pension is the most important element of retirement income for most pensioners the average payment in Great Britain is still less than £9,000 a year – a pretty basic amount – and some receive much less. As a consequence, more than 2 million pensioners live in poverty. Nearly a quarter (23%) rely on means-tested benefits to top up their income and many others are entitled to, but not receiving, benefits that are due to them. For example, nearly a million pensioners who should be getting Pension Credit are missing out.
Think of the future
And while the triple lock is really important to help maintain incomes in retirement, especially for those on low incomes, we must not fall into the trap of seeing it as something that only affects current pensioners and therefore unfair to younger generations. In some respects, any changes will hit the future retirement income of younger people the hardest. Research by the independent Pensions Policy Institute has shown that without the triple lock it will be harder for younger workers on low incomes to achieve an adequate income in retirement. Given the adverse impact the pandemic has had on jobs, earnings, and prospects for saving into a private pension, the State Pension could well become even more important for todays’ workers when they reach retirement.
However, this year there have been calls to change or suspend the triple lock because rises in average earnings have been running at around 8% due to lockdown causing a drop in average earnings, followed by recovery. We understand why this has prompted policymakers to look at the formula being used this year especially in the context of the public finances having been impacted by COVID-19. However, it's asking a lot for older people to believe that any scaling back of the triple lock would only be temporary, rather than permanent. This is especially true when we know that some of the prominent voices arguing for a suspension of the triple lock in response to the pandemic, are the same people who have called for its abolition in the past. Moreover, the fact this Government declined to step in and save the free TV licence for over-75s (another manifesto commitment), hardly helps to build trust.
Age UK remains a strong supporter of the triple lock because it sustains and, in some years, increases the value of the State Pension protecting the incomes of current and future pensioners. When considering the uprating policy for next year and the future the Government must remember how far we still have to go before every older person receives enough through their State Pension to live decently in retirement. As things are, too many pensioners still have to watch every penny and worry about how they would manage if an unexpected big bill came along - a situation the pandemic has done nothing to improve.
