The state pension Triple Lock system must be replaced with a new 4-point guarantee system, the government has been told.
The state pension Triple Lock should be scrapped say experts (Image: Getty)
The state pension triple lock system must be scrapped and replaced with a new four-point system, leading financial think tank the Institute for Fiscal Studies has announced today.
A new report called The Pensions Review: Final Recommendations has controversially urged the government to abolish the current triple lock state pension system over concerns it will become unaffordable for the state, and instead replace it with a ‘four point plan’.
Currently, state pensions are guaranteed to rise every April by one of three factors: inflation, wage growth, or a flat 2.5%, whichever of those three is highest. This is known as the triple lock system, and has been in place since it was introduced by the Conservative/Lib Dem coalition government in 2010.
Reforms to pensioner benefits have proven to be hugely unpopular, as was seen with the change to the winter fuel payment system, which has now been made much more generous for 2025 after a fierce backlash.
The IFS report suggests that an ‘ageing population’ will put pressure on the public purse, with the triple lock identified as a key contributor to the problem. It goes on to add that simply increasing the state pension age to help pay for triple lock rises risks increasing poverty among those in their 60s as well as those with shorter life expectancy.
The IFS report says: “An ageing population places pressures on the public finances through increased spending on state pensions and in particular on health and social care. A generously indexed state pension adds to these growing pressures. The ‘triple lock’ increases the value of the state pension in an unpredictable way and it could reasonably be expected to push up state pension spending by anywhere between £5 billion and £40 billion a year in 2050 in today’s terms.
“Rising state pension ages have substantially pushed up the risk of income poverty among those in their mid 60s. Those reaching retirement in the private rented sector, increasing in number, are also at a heightened risk of poverty throughout their retirement.”
It adds: “Relying only on raising the state pension age to rein in spending would hit those with lower life expectancy – disproportionately including many on lower incomes – harder.”
The think tank then suggests a somewhat complex new model for pensions, focusing first on state pension income as a percentage of typical full-time earnings, then on meeting inflation as a second priority. It stresses that the state pension must not be means tested.
The IFS says: “To help with these challenges, we propose a ‘four-point guarantee’ for the state pension. This is designed to give people more confidence and certainty over what they can expect their state pension to provide; help them avoid old-age poverty; and provide a bedrock on top of which private pension saving can be built.
- There will be a government target level for the new state pension, expressed as a share of median full-time earnings. Increases in the state pension will in the long run keep pace with growth in economy-wide average earnings, which ensures that pensioners benefit when the incomes of working-age households rise.
- Both before and after the target level is reached, the state pension will continue to increase at least in line with inflation every year. Together with the first point, this means that the state pension will follow a ‘smoothed earnings link’, as is used in Australia.
- The state pension will not be means-tested.
- The state pension age will only rise as longevity at older ages increases, and not by the full amount of that longevity increase. To increase confidence and understanding, the government will write to people around their 50th birthday stating what their state pension age is expected to be. Their state pension age would then be fully guaranteed 10 years before they reach it.
The report adds: “The smoothed earnings link is an important improvement to the system. Retaining the triple lock while raising the state pension age would hit poorer people more because the loss of a year of state pension income is more important for those with lower life expectancy, as they spend fewer years above the state pension age. On the other hand, those with a higher life expectancy benefit relatively more from the triple lock, as they are
