Will the triple lock be removed after the election?

1 May 2017   By Samantha Smith

THE former Pensions Minister Steve Webb has joined a growing chorus of voices calling for the removal of the triple lock, proposing changes that would reportedly save the UK public purse almost £3 billion a year by 2027/8.

pension nest egg
Credit: SpeedKingz/Shutterstock.com

Authoring a report for insurance firm Royal London, Mr Webb put forward what he dubbed a "middle way", which would retain the triple lock on the old basic state pension (received by those who retired before April 6th 2016), but gets rid of it for those who have retired and will retire after April 6th 2016.

However, while his plan protects older retirees at the same time as reducing the overall cost of pensions, it still isn't clear whether the Government would actually remove the triple lock if returned to power in June.

Added to this, it also isn't clear whether reducing the value of the state pension is the best way of addressing the widening gap between average pensioner incomes and those of working-age households, who suffer more from stagnant incomes and rising living costs than from a protected state pension.

Long-term cost implications

Relevant guides
Should I keep my workplace pension?
When can I retire?
Keeping track of your nest egg
Overview: the flat rate state pension

But even if the Government have yet to commit one way or another on the issue of pension, Royal London's proposals do appear to make sense.

That's because they recognise how poverty tends to affect over-75s more than retirees aged between 65 and 74, with a 2016 study from Independent Age finding that over-75 receive £59 a week less than their younger counterparts.

It's arguably because of this imbalance that it wouldn't be the best idea to completely abolish the triple lock, which increases the state pension according to whichever is the highest of inflation, wage growth or 2.5%.

Royal London's proposals recognise that such a guarantee is an important bulwark against retirement poverty, with their report asserting that newer retirees earn £100 more on average than over-75s.

Yet it also recognises that the triple lock is expensive for the UK, and proposes that the state pension of people who retired after April 6th 2016 should be linked only to wages.

Making this link would, according to Royal London, save around £500 million per year by 2021/22, and almost £3 billion per year by 2027/28.

Low millennial incomes

In other words, Royal London's middle way "would cap the cost of the triple lock whilst focusing spending increasingly on the older and poorer section of the pensioner population", as Mr Webb himself has said.

However, while their more balanced approach is an improvement over reviews which have simply called for the triple lock to be disposed of, it perhaps isn't a solution to the UK's income imbalance between younger and older generations.

Abolishing the triple lock outright would leave many existing pensioners on relatively modest incomes, with older pensioners facing much lower living standards than the newly-retired.
Steve Webb, Royal London

Like those suggestions which would do away with the lock altogether, Royal London's plans call for an increase in the amount of money employees put into workplace pension schemes, so as to compensate for removing the lock.

Yet this approach risks neglecting the increasing numbers of people who are self-employed and in temporary work, and who would rely more on a state pension since they have no option to join a workplace pension scheme.

More importantly, while Royal London's report acknowledges that the current crop of new retirees are generally better off than over-75s, it fails to recognise that in the future this isn't likely to be the case.

And this isn't just because of a historical shift to more temporary work, but also because the incomes of millennials have substantially decreased compared to the generations before them.

As such, removing the triple lock now just because the current breed of pensioners are more well-off than those currently in work is short sighted. It would have the counterproductive effect of worsening the current gap between younger and older generations, since the younger would go from suffering lower working incomes to suffering lower pensions as well.

Pensioner incomes

Source: Cridland Independent Review of Retirement Age, March 2017

Yes or no?

Ultimately, this is why, contrary to what's assumed, the recent attacks on the triple lock isn't actually a rare example of the Government and various institutions favouring the young over the old, but rather of them continuing to act to the long-term expense of younger generations.

That said, it still isn't evident whether the lock will be removed in the next parliament.

The Prime Minister has refused to commit to protecting it, yet at the same time there's speculation that she will in fact vow to protect it in the Conservative election manifesto. Meanwhile, Labour have promised to preserve it.

Together, these various facts make for a mixed bag of signals. However, what's clear is that, if the triple lock does go, pensioners will lose out on as much as £365 a year, as calculated by a Hymans Robertson analysis for the Daily Telegraph.

When many pensioners are already struggling to stay above the poverty line, this is a considerable amount of money. But even if it is taken away, the savings in public spending still wouldn't change the fact that millennials are earning less than the workers who came before them.

Get insider tips and the latest offers in our newsletter

independent comparison

We are independent of all of the products and services we compare.

fair comparison

We order our comparison tables by price or feature and never by referral revenue.

charity donations

We donate at least 5% of our profits to charity, and we aim to be climate positive.