During the general election campaign this year there was a rare political consensus around one particular policy – retaining the state pension triple lock.
Labour, the Conservatives and the Liberal Democrats all committed to keeping it. The Tories went further with a “triple lock plus” promise to prevent pensioners from being dragged into paying tax and the Scottish National Party and Plaid Cymru also fully supported the lock.
This Labour government has now confirmed it will not scrap the triple lock and will protect it until at least the end of this Parliament in 2029. As ministers have learnt from the decision to means test the winter fuel payment, pensioner-aged welfare can be a politically sensitive issue.
What no one wants to talk about is the cost of the triple lock. The policy, announced under the 2010 coalition government, promised to increase the state pension every year in line with the higher of earnings, inflation or 2.5 per cent.
There was one year where the policy was paused, during the Covid pandemic, but it has otherwise seen a huge rise in pensioner income. In recent years, high inflation and economic shocks have resulted in a ratcheting effect.
Figures from the Department for Work and Pensions from 2023 put total state pension spending at £124bn per year in 2023-24, or 4.8 per cent of national income.
This week the triple lock was once again under scrutiny after higher than expected wage figures – the bigger of the three measures – of 4.1 per cent pushed the rise to a more than anticipated £473, costing the Chancellor an extra £100m.
In a report published in 2023, the Institute for Fiscal Studies (IFS) estimated the cost of retaining the triple lock – compared with increasing the state pension in line with average earnings – could cost between an additional £5bn and £40bn per year in 2050 in today’s terms. The level of uncertainty, as well of the sheer size of the cost, are basis for an argument for change.
Reforming the triple lock
Suggestions around what to do about the policy range from making it a “double lock” – based on earnings and excluding the measure of inflation – taking an average increase over a longer period. Both are designed to ensure it rises in line with the cost of living without resulting in successive spikes during periods of high inflation or economic uncertainty.
Jonathan Cribb, associate director at the IFS, told i: “There are three main issues with the triple lock. Firstly, it is unpredictable in terms of what it is going to cost. Secondly, to the extent it is predictable is when the economy is going badly which means it will cost more. And thirdly, it costs governments a load of money at the point of poor economic performance. What we have tried to do is say that even if you want to protect pensioner incomes you can do it in a better way.
“If you want to have a higher state pension, make a case for it rather than allowing it to get there randomly. It should be a deliberate decision because of the cost and it is strange to have to cut other spending areas because of unplanned increases in pension costs.”
The IFS argues the Government should state what it believes to be an appropriate level for the new state pension relative to average earnings and set a time frame for reaching that point. Once that has been achieved, it should then rise in line with inflation.
Robert Colvile is the director of the Centre for Policy Studies think-tank and co-authored the Conservative Party 2019 election manifesto. He told i the CPS has suggested a compromise which to spread the period of time used for the calculations over several years – which would avoid the policy being so susceptible to “sharp rises we have seen”.
But even this, or the suggestion of a double lock based on earnings over inflation, are seen as too controversial for politicians to touch.
“Pensioner poverty has fallen sharply – there are still pensioners in poverty and some people think when you talk about reforming the triple lock you are denying that,” he said, acknowledging the positive impact the mechanism has had on the income of retirees. “But the design of it is bad. When it was raised during the coalition discussions, it was genuinely predicted it would cost tens of millions of pounds.”
Mr Colvile suggested averaging the calculations out over a five-year period would protect against a one-year spike in inflation.
“When the economy is growing steadily the cost of the triple lock isn’t that much and it works as it is intended,” he said. “But what happens if you have an inflation spike, for example, or an economic downturn is the triple lock not only protects people during the downturn but then there is an after effect due to inflation. So during the last two years everyone else’s income has had chunks out of it but not pensioners.”
The political challenge of changing it
There is a consensus that, politically, it is very difficult for ministers to change the policy even though they get very little credit for increasing the pension at such an expense, because that has become the expectation.
Mr Cribb, of the IFS, said governments could find themselves forced to rely on raising the state pension age rather than trying to tackle the triple lock.
“At the moment, it looks easier to increase the state pension age than it does to limit the level of it but that has not always been the case,” he said. “It is probably true that the increase in the state pension age has been fairly successful in terms of it has not been that politically controversial. And I wonder whether doing these reviews earlier in Parliament, rather than later, would help.”
Mr Colvile said: “It would be economically rational to change it, I think pretty much every policy expert has said it is badly designed. But the politics of it are awful. It’s very popular and politicians are nervous about tampering with it. Everyone expects it to go up and you are punished if it does not so – for this extraordinary generosity – there’s no political credit for confirming.”
He said the triple lock had become part of the narrative around “taking money away from working people and giving it to pensioners”.
“It happens at the same time of young people being locked out of the housing ladder, having expensive debts and childcare, ever increasing taxes… It is unpopular to say this but it is unfair,” he said. He added that the backlash Labour had received over its decision to mean-test the winter fuel payments indicated they would not want to go anywhere near pensioner welfare again.
“There’s definitely an overwhelming case for smoothing out the fluctuations but given the buckets that have been poured over the government over the winter fuel payment, I cannot see them doing that,” he said.
Convincing voters of the case
The triple lock is universally popular among voters when polled on the policy. But often voters do not have a real understanding of the cost – and trade-offs – of such measures.
Joe Twyman, director of Deltapoll, said: “I do think it is a particularly emotive issue for people because it deals with older people – grandparents, parents. And when you talk in focus groups you do find people are more emotionally involved in the amount spent on pensions than other things. But the reality is a lot of pensioners are well off.”
As an illustration of this, Deltapoll tested manifesto commitments before the election. The idea of the triple lock plus – the Tory policy – had an agreement of 79 per cent and an “Emotional Resonance Score” of 65 out of 100. A similar proportion of people (78 per cent) agreed with not increasing income tax, insurance and VAT but the emotional score for this was 44.
“The difficulty is often not the policy itself it is the way it is presented,” he said. “Cutting winter fuel payments is a good example of that. If you present it as ‘do you support that the tax break for pensioners is means tested so the most vulnerable have it?’ you get higher support than if you say ‘should the winter fuel payment be cut’.”
He said that the Tory strategy over the past 14 years had been to prioritise pensioners – the party’s voter base – often over young people. “Labour are in a more difficult position because they cannot screw over young people but the problem is they don’t want do that to older people either.”
“Labour’s best approach is probably to try and present it in terms of fairness and equality – so its not about bringing old people down its about equalising everything so everyone gets a fair deal
