MPs warn over ‘triple lock’ pensions cost

Millions of people in poorer areas may not live long enough to claim their state pension if the “triple lock” protection on pensioner incomes remains in place, a committee of MPs has said.

Under the triple lock, the state pension rises each year by the highest of price inflation, average earnings growth or 2.5 per cent. The system came into effect in 2012 after pensioner incomes fell to a record low in relation to earnings.

But a report published on Tuesday found the state pension age (SPA) may need to rise beyond 70 — above average life expectancy in hundreds of postcodes — to fund the costs of the keeping the triple lock in place.

The government has come under increasing pressure to justify the measure, which the Government Actuary’s Department estimated was adding £6bn a year to the state pension bill.

Research conducted for the Work and Pensions Select Committee by the Institute for Fiscal Studies, a think-tank, found the SPA would need to rise to 70.5 years by 2060 for spending on the state pension to be maintained at about 6 per cent of GDP in the long run.

The SPA is currently 65 for men, while women’s SPA is set to rise to the same level by late 2018.

“With the triple lock in place the only way state pension expenditure can be made sustainable is to keep raising the state pension age,” said Frank Field, the committee chairman.

“This has the effect of excluding ever 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.”

Male life expectancy was less than 70 in 162 areas in Scotland and 62.5 in parts of Glasgow, the research found. In England, male life expectancy was below 70 in 26 areas, and lowest at 67.5 in Blackpool.

The IFS research said that between 2010 and 2016 the value of the state pension increased by 22.2 per cent compared with growth in earnings of 7.6 per cent and growth in prices of 12.3 per cent over the same period. This pushed up the value of the basic state pension to its highest share of average earnings since April 1988.

By 2060, the committee’s proposal to replace the triple lock with a “smoothed earnings link” would save 0.8 per cent of GDP a year, or £15bn in today’s money, equivalent to 4 pence on the basic rate of income tax, the report found.

Sir Steve Webb, the former pensions minister who oversaw the introduction of the triple lock, said the committee had reached a “very partial and incomplete conclusion”.

“To imply that keeping the triple lock is somehow bad news for poorer people misses some key issues,” said Sir Steve, now director of policy with Royal London, the insurer.

“In particular, the state pension is a far more important element of the retirement income of women than of men, and a flat rate pension tends to redistribute from high earners to low earners.

“Any decision about the triple lock has to take account all of the impacts of the policy, not just the impact on state pension age.”

The government has committed to review the triple lock on uprating the state pension before the next Parliament in 2020.