ROS ALTMANN: It’s really important to protect pensioners – but is the triple lock the best way?

12 June 2020

While it is important to protect pensions, policy decisions could be revisited in light of the coronavirus pandemic

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The triple lock on state pensions was introduced in 2011 to protect pensioners’ incomes. Over many years, the basic state pension had fallen significantly behind general increases in income for the whole population, and the coalition government committed to increasing state pensions each year by the highest of earnings inflation, price inflation or 2.5%, which has resulted in a welcome reduction in pensioner poverty over time.

The triple lock itself is a political construct, rather than an effective social policy tool. Unfortunately, it has become a totemic symbol of government commitment to look after pensioners. This seems, to some degree, to have turned the ‘triple lock’ into a short-hand measure of policy for pensioners’ wellbeing. 

However, the reality is that this policy has serious shortcomings. It fails to protect the poorest and oldest pensioners, while offering top protection to those who are still in their 60s, who reached pension age since April 2016. Indeed, the introduction of the new state pension at that time has made the impact of the triple lock even less justifiable. If our aim is to protect pensioners, then surely national resources should be focussed on the poorest. But that is not how the triple lock works.

The triple lock only applies to the £134.25 old basic state pension. This is received by those who reached state pension age before April 2016, i.e. the oldest ones who are already over the age of 70. The old state pension system paid two elements — a basic flat rate amount, plus additional earnings-related elements including state second pension (S2P) and the State Earnings Related Pension Scheme (Serps). The full Basic State Pension is £134.25 and only that part is covered by the triple lock. The additional S2P and Serps only increase in line with price inflation.

In contrast, the triple lock covers the full £175.20 new state pension.  The new state pension, introduced in April 2016, joins together the old basic and additional pensions into one payment. So, those reaching pension age since April 2016 can get a new state pension of £175.20, which is fully covered by the triple lock. The youngest pensioners have £175.20 of their state pension triple locked, but older pensioners only have £134.25 protected in this way — over £40 a week less protection.

Even more concerning, triple lock does not cover pension credit. This is designed to help those pensioners most at risk of poverty and tops up any state pension or other income they are receiving to £173.75 a week. But this is not covered by the triple lock. Pension credit only has to rise in line with earnings inflation, therefore excluding the poorest pensioners from triple lock top protection. If prices rise by more than earnings and if both are below 2.5%, pension credit for the poorest pensioners may fall behind other pensioners and the rest of society.

Of course, we must protect pensioners, but is this triple lock the appropriate policy?

Providing less protection to the least well off does not seem logical — and the 2.5% element does not have economic or societal logic. The rationale seems to have become entirely political. Of course, it is vital to protect pensioners and I would hate to see any return to the widespread pensioner poverty that we have worked hard to overcome. However, with the introduction of the new state pension, and after the latest crisis, it seems as if it’s time to move on.

Government can consider a double lock to increase by highest of earnings or price inflation. A double lock would seem more justifiable in policy terms, ensuring state pensions rise in line each year with the best of earnings or price inflation. And this needs to apply to pension credit too.

The costs of the triple lock, in terms of the long-term budget forecasts, are significant. The triple lock adds significantly to the long-term cost estimates for state pensions. It may also lead to further upward pressure on state pension age, which again can be detrimental to the poorest and least healthy older people in our society. If both earnings and prices increase by less than 2.5%, the costs of pensioner support add extra strain on our already over-extended public finances and there is clearly a trade-off between triple lock costs and pressure to save money by increasing state pension age.

 Will the latest crisis help reduce political attachment to this totemic policy? We absolutely must protect pensioners, who cannot increase their future earnings to make up for crisis periods. However, all policy decisions are likely to be revisited in light of this latest health and economic crisis.  It is important not to rush to hasty conclusions, but I do hope the political class and media commentators will consider the way the triple lock actually works and objectively assess whether it may have run its course.

 

Ros Altmann is an expert on all aspects of pensions and later life policy and is a former pensions minister.