Will the pensions ‘triple lock’ bankrupt Britain?
The pensions ‘triple lock’ has become a toxic and tense social issue. Intergenerational grievances, resistance to welfare reform, the fear of economic meltdown – these tricky issues are all tangled up with how much the state should pay retirees. And that’s even before we consider politicians keen to retain the grey vote. What’s at stake and where do you stand?
The triple lock guarantees that the state pension rises every April by whichever is highest: CPI inflation, average wage growth or a flat 2.5 per cent. Although it is relatively recent – announced by the Lib-Con coalition in 2010 and implemented the following year – it has already become an untouchable ‘third rail’ in British politics: fiercely defended by many voters and increasingly viewed by economists as a fiscal time bomb.
Defenders argue that the triple lock corrects decades of under-investment in pensions and protects the dignity of the elderly. Even now, comparing the state pension with average earnings, a House of Commons report notes: ‘The UK has an overall net replacement rate of 54.4 per cent from mandatory pensions for an average earner, below the OECD average of 61.4 per cent.’ In this view, the triple lock has allowed pensions to finally make up lost ground.
However, as critics counter, while older citizens without employment income were widely under threat of poverty, in reality older people today are relatively wealthy in comparison with struggling young people. In which case, the triple lock can be seen as unfair, making younger people pay for a very comfortable lifestyle for retirees. The ratchet effect means state pensions will always outstrip both wages and inflation. This largess looks increasingly unaffordable into the future.
Moreover, while other welfare benefits – like Universal Credit, housing allowances and child benefits – have frequently been frozen, capped or restricted, pushing the burden on to poorer people, many pensioners have workplace or private pensions, and greater financial security. Indeed, the international comparisons of pension rates frequently ignore the larger role that workplace and private pensions play in the UK.
All this has taken place against the background of a stagnating economy. Would this really be such an issue if GDP were growing faster? If we want to look for ways to cut public expenditure, would it be better to try to get more people off benefits and into work? And is the real threat not from state pensions but from the ballooning liabilities arising from public-sector workplace pensions? Do intergenerational tensions around this issue reflect righteous concern at discrimination against the young or meanspirited griping and a lack of respect for elders? Regardless, has the triple lock served its purpose – and is it time to call a halt?
