Plans to ditch the triple lock on the basic state pension would represent a “double whammy” for the poorest pensioners, many of whom have already lost out under this month’s new flat-rate pension, according to a leading pension expert.
Pensioners who rely on the state pension for most of their income will be the biggest losers should the Tories drop the element of the triple lock that guarantees annual rises of at least 2.5%.
Chris Noon, a partner at leading pensions consultancy Hymans Robertson, said linking increases to earnings growth or inflation would, over time, erode the value of the pension and push larger numbers of people into poverty on reaching retirement age. He said: “The low paid were the community most negatively affected by the significant changes to the state pension introduced from April 2016. Removing the 2.5% minimum increase … is a double whammy that would again impact this community hardest over the medium to long term.”
The flat-rate state pension, worth £159.55 a week, combines the basic state pension with pension credit and the state second pension, which previously rewarded low-paid workers with generous top-up payments. Estimates put the savings at £8bn by the end of the parliament. Ending the triple lock would come on top of this cut.
Theresa May is understood to be considering replacing the “triple lock” with a less generous “double lock”, and spending some of the money saved on social care. The triple lock has come under scrutiny since figures showed it was behind a 22% increase in pensioner incomes in the last seven years, while average earnings rose by only 12%. It is understood that Downing Street is weighing up whether a more affordable “double lock” would be seen as a more sensible safety net for retirees.
Craig Berry, deputy director at the Sheffield Political Economy Research Institute (Speri), said reducing the triple lock would have little impact on the government’s finances over the next few years, while the economy remained strong. But without a 2.5% rise when earnings growth and inflation are low, pensioner incomes will fall back and lead to millions of people over the coming decades needing extra state funds.
“The triple lock should be maintained,” he said. “The policy increases the costs of the state pension only modestly, and represents the least the government can do to ensure its value starts to rise, from a very low base, towards the average for highly developed countries.”
Ros Altmann, the former pensions minister, said she was relaxed about switching to a double lock if the savings were channelled into improving the state pension provision that affects older retirees, including pension credit and the state second pension, which have become less generous in recent years. “The triple lock does not apply to pension credit, so it fails to protect the poorest. It doesn’t protect Serps, the state second pension, widows’ pensions, deferred pensions and so on. So politicians have claimed it protects pensioner incomes but it doesn’t do it. Not properly,” she said.
Britain spends about 6% of GDP on the basic state pension and 6% on an array of benefits and earnings-related top-ups, of which the second pension and pension credit are the biggest.