A further large triple lock increase which will see the state pension rise by 8.5% next April has raised questions over the policy’s long-term viability.
On Tuesday, the Office for National Statistics published earnings data which revealed a 8.5% increase in average total pay including bonuses during May to July 2023. The triple lock guarantee means that the state pension increases in line with the highest of either average earnings, inflation or 2.5%.
If confirmed, these figures will see the full state pension increase to £221.20 per week, or £11,502.49 per year from April 2024.
This level of uplift follows the inflation matching 10.1% boost that saw the 2023/24 state pension rise to £203.85 a week, or £10,600 annually. It means combined, pensioners will have received an increase of almost 20% over two years.
However, the sharp rise has raised a question mark over whether the cost of funding the policy is too great, particularly amid the cost-of-living crisis.
James Carter, head of pension products & policy at Fidelity International, said the triple lock has become a “political and economic dilemma” for the Government.
Carter said: “As a long-standing Government policy, to which commitment has frequently been reasserted, economic volatility and issues of cross-generational fairness continue to force difficult debate. Recent analysis by the Institute for Fiscal Studies illustrated that, in applying the higher of the increase in prices and wages, the State Pension has increased more quickly than it would if either measure had been used individually.
“What the experience of recent years has shown is that perhaps the triple lock is another casualty of these more volatile times. The real question we’re facing now is whether this is a viable long-term solution. Now is the time to consider the right and stable basis for the future of the UK State Pension so consumers have certainty. We live in a more volatile economic and political environment and a resilient future strategy is needed.”
According to Carter, a broader review of the UK pension system is required, taking into account the state pension alongside the development of the automatic enrolment regime.
Jon Greer, head of retirement policy at Quilter, described the triple lock as a “symbol of intergenerational tension.”
Greer commented: “On the one hand, some say the triple lock should be scrapped because it provides a huge boost to pensioner income at significant cost to government at a time when funds are being increasingly stretched in other vital areas. On the other hand, there are arguments that the younger people should welcome the increased state pension as they will one day receive the benefit themselves. The truth is that both arguments are correct. Young people will benefit eventually but that is a long time away. What matters in the here and now is that the state pension uprating is done in a way that links pensioner income to experiences in the wider economy.”
Greer called for an agreement on the level of the state pension and separately, a fair mechanism for ensuring its value is maintained overtime.
“Without such an approach, each time the uprating of the state pension occurs a dividing line will be drawn, setting generations against each other. Just this week, the Prime Minister refused to commit to including the triple lock in the Conservative party’s election manifesto so we can expect the subject to be further pressed in the coming months as election campaigning kicks off,” he added.
Steven Cameron, pensions director at Aegon, said: “The triple lock has been on a wild ride in recent years due to the high level of volatility in the economy and the unpredictability of both inflation and earnings growth.
“The huge popularity of the triple lock amongst pensioners is balanced by the huge cost of funding it, which is met by the current National Insurance contributions of today’s workers. All parties must find a way to balance the books.”
According to Cameron, a “fairer and less unpredictable” option would be to move away from a year-on-year comparison of earnings, inflation and 2.5% to one which averages out across several years.
