Over 10 million people could find their spending power in retirement at risk if – as has been mooted by some – the Government drops the key “triple‑lock” policy applying to the state pension.
The “lock” promises that the state pension will rise by the highest of one of three measures: wage growth, inflation or 2.5pc. In a move clearly designed to appeal to older voters ahead of June’s election, the Labour Party has promised to safeguard this mechanism.
But last week Prime Minister Theresa May would not be drawn on whether she would follow suit and extend the pledge into the next Parliament.
Last month, an independent review of the state pension commissioned by the Government recommended scrapping the protection.
Funding the state pension was worth 5.2pc of Britain’s entire economic output last year and is set to rise to 6.7pc by 2066. Removing the triple lock would bring this down to 5.9pc, the review said.
The OECD, the global economic think-tank, has also called for the measure to be abolished, claiming it unfairly favours pensioners over the working population.
Last year, Labour MP Frank Field, chair of the influential Work and Pensions committee of MPs, struck a similar note when he said the only way to justify preserving the triple lock would be to raise the age at which you get the state pension. But he is not an advocate of this.
He said: “A higher state pension age has the effect of excluding more people from the state pension altogether. Such people will disproportionately be from more deprived areas and manual occupations, while those benefiting most will be the relatively prosperous.”
But exactly what would happen if the triple lock were picked?
Analysis for Telegraph Money compiled by Hymans Robertson, a pensions consultancy, shows how much pensioners would have lost if the triple lock had not been brought in by the Coalition government in 2010 (see graph, page 10).
It shows that if a “double lock” – based solely on earnings and prices – had been used since then instead, the basic state pension would be worth £106.8p a year less than it is in 2017-18.
Removing the link to wage growth as well would have an even bigger effect, the data shows.
Leaving just the inflation protection would have shaved off £365.56p a year, turning the current basic state pension of £6,360 into £5,994.