The state pension triple lock will worsen an economy already heavily 'skewed' towards baby boomers and against millennials, and therefore it should be scrapped, the Commons Work and Pensions Committee announced.
The committee made this suggestion following its inquiry into intergenerational fairness - and raised the issue of wealth distribution among generations in the UK.
Instead of the triple lock, it recommends that “the government benchmark the new state pension and basic state pension at the levels relative to average full-time earnings they reach in 2020”.
“The triple lock should then be replaced by a smoothed earnings link. In periods when earnings lag behind price inflation, an above-earnings increase should be applied to protect pensioners against a reduction in the purchasing power of their state pension.”
Double lock suggestion
Former pension minister Ros Altmann has previously suggested moving to a 'double lock' after 2020, to give pensioners the better of either prices or earnings inflation.
She says: “It is dangerous for public finances and for pension policy as a whole to bake in a 2.5% figure that doesn't relate to anything in the economy.
“Moving to a double lock leaves it to the government of the day to assess the state of the economy and adjust pensions accordingly. And actually when you do the numbers, you save a lot more money by changing the uprating of the pension than you do by increasing the state pension age.”
Ms Altmann pointed out one problem with continually raising state pension ages is that it is unfair on certain groups in society, because there is a marked variation in life expectancy: low earners, people with heavy manual labour jobs and those who live in industrial areas have lower life expectancies.
However, Adrian Walker, Old Mutual Wealth retirement expert, believes it would be a surprise if the policy was reversed just a few years after it was first introduced. And government will not undo the measures without careful thought, since it risks aggravating retired voters.
Tom McPhail, head of retirement policy at Hargreaves Lansdown, echoes his point: “Politicians are chronically compromised when making any policy decisions which might be detrimental to older citizens.”
You only have to look at the turnout in general elections to understand why: 78% of the over 65s voted, compared to just 43% of the eligible under 25s.
Nonetheless, Mr Walker says: “It is logical that the triple lock cannot remain in place forever because, over time, pension benefits would grow and grow without ever levelling out. That cannot be sustained indefinitely.”
He points out that because of the relatively low wage growth, low inflation environment we are in, the extra guarantees offered by the state pension have come under scrutiny. They have been particularly questioned at a time when welfare cutbacks are affecting the working age population.
Against that backdrop, some argue the triple lock is an unfair double standard, he says. Linking the state pension to wage growth might introduce a greater sense of fairness by putting working-age generations and retired generations on an equal footing.
The current system will come under further pressure because the UK's ageing population means we are heading toward a period where a smaller pool of working taxpayers must fund the state pension bill of a larger retired population, adds Mr Walker.
As a result, even small increases in state pension payments will have a big impact on public finances and this becomes more acute as the demographic shift develops over time.
This story was originally written for our sister magazine, Money Observer.