The government has confirmed that both the state pension triple lock and the winter fuel allowance will be protected, despite proposals to the contrary in the Conservative’s manifesto.
The decision was confirmed in a document published today, outlining the “confidence and supply” agreement struck between the Conservatives and the Democratic Unionist Party (DUP). The deal will enable the Tories to win major votes in parliament without the majority it lost in the general election.
It also means the state pension will continue to rise in line with the higher of wage growth, inflation or 2.5%. This differs from the Tory manifesto, which pledge to maintain the triple lock until 2020 (as per it’s 2015 general election pledge) but then replace it with a new ‘double-lock’ rising in line with the higher of wages growth or inflation.
The winter fuel allowance, which pays older people up to £300 each winter, will also remain – despite the Conservatives pledging for it become a means-tested benefit.
Commenting on the news, Steve Webb, former pensions minister and director of policy at Royal London says: “Retaining the triple lock is likely to be relatively cheap, now that inflation has risen above the 2.5% floor. Means-testing winter fuel payments was always going to be complex and controversial, so many Conservative MPs will be pleased to see this policy ditched.”
However, that is not to say that the new government will not make other changes to pensions policy. “The DUP decision to back Conservative Finance Bills probably means a greater likelihood of getting cuts to pension tax relief through Parliament,” Mr Webb adds.
‘Political necessity has once again trumped long-term thinking’
Yet while the decision to protect the triple lock and the winter fuel allowance will be welcomed by retirees, some critics claim the policy is unsustainable. Tom Selby, senior analyst at AJ Bell says: “Political necessity has once again trumped long-term thinking when it comes to the state pension triple-lock. The policy has simply become a symbol for doing right by older people, and as a result there has been little serious debate over its purpose or sustainability.
“The reality is the triple-lock is a random mechanism for ratcheting up the value of the state pension during periods of low inflation and average wages, without any clear destination or justification. Indeed, moving to a double-lock of earnings or inflation is unlikely to cost a lot less in the short-term – and could cost nothing at all if either remains above 2.5% between now and 2022.”
Mr Selby said that without reforms the state pension is at risk of “crashing down”, with estimates suggesting that in 50 years’ time the policy will cost £30 billion more in today’s terms than it currently does. He adds: “This will involve either reducing the amount people receive, or increasing the state pension age. Neither of these reforms will be popular but if politicians refuse to address this reality they will risk further piling the burden on future generations.”