Time’s up for the triple lock on state pensions

19 May 2017

Three days, three manifestos, and the battle lines are drawn for the triple lock on state pensions.

While Labour and the Liberal Democrats will keep the guarantee on annual increases for pensioners throughout the next parliament, the Conservatives plan to reduce it after 2020 to a double lock.

The triple lock means annual rises in the state pension are decided by whatever is the highest of price inflation, average earnings growth or 2.5%. In the past few years, the state pension has routinely risen by 2.5% because salary increases have remained weak and the inflation rate low. The double lock will see the current 2.5% base line guarantee being abolished.  

The Labour and Lib Dem pledges to retain the state pension triple lock go against the recommendations of both the Work and Pensions Select Committee and John Cridland’s independent report, both of which concluded the policy should be scrapped. Plus, the cost of the triple-lock promise is uncertain – if earnings and inflation are below 2.5%, it could be very expensive.

So far this year, however, inflation has been nudging up, reaching 2.7% in April, the highest level since September 2013. If inflation and headline earnings growth continue to pick up, the cost of guaranteeing a 2.5% underpin on pension rises may be relatively modest.

But although it’s a sensitive matter with older voters, many experts say the triple lock cannot remain ring-fenced indefinitely. And the longer the triple lock is maintained the more it places pressure on government to increase state pension age, so it is something of a doubled-edged sword.

Whilst Labour and the Lib-Dems want to keep the triple lock for the moment, they might have to change that policy by the time inflation is next below 2.5% so there may not actually be as big a difference between the parties as it seems at a first glance.