Few subjects are as emotive as the state pension and the triple lock guarantee that protects people’s incomes in later life.
The drain on the public purse of continuing to provide the triple lock is daunting. At a time when the national finances are sorely stretched, it costs the Government an extra £11 billion a year to fund compared to what it would have cost to keep the pension rising in line with just prices or earnings, according to the Institute of Fiscal Studies think-tank.
But, however much Rishi Sunak would like to save money for tax cuts – and however compelling the economic case for ditching the triple lock may be – scrapping it is tantamount to an election death wish. A formidable army of 12.6 million people are receiving the state pension – a group the Conservatives alienate at its peril.
In its current form, the triple lock promises older Britons an annual increase in their state pension based on the higher of earnings growth, inflation, or 2.5 per cent.
It was introduced under David Cameron in the 2010 Budget, when inflation was low and the economic environment was markedly different.
Unless he has suicidal tendencies for the next election, Rishi Sunak will stick with the guarantee for the time being
READ MORE: Rishi Sunak will NOT axe the triple lock on pensions: Prime Minister set to fight the next election on the pledge to keep the policy – despite its spiralling costs
Rishi Sunak is set to fight the next election pledging to keep the pension ‘triple lock’
Honouring the pledge under current conditions is far more expensive than could have been envisaged back then.
Inflation is running at a painful 6.7 per cent and earnings are growing at a clip of 8.5 per cent, the highest on record outside of the pandemic.
The latter figure is the one that is meant to be used to determine how much pensions will go up next spring. Clearly it is higher than the Government will find comfortable.
The aim of the triple lock is to ensure that pensioners’ spending power does not dwindle over time, which would leave them progressively worse off compared with the working population. In a civilised country, older citizens should not be left behind after a lifetime of work.
The problem is the sheer size of the bill, along with issues of inter-generational fairness – with young workers being taxed to pay for retirees.
With an ageing population, these questions are becoming more pressing. Providing a triple lock guarantee to more and more pensioners risks becoming unaffordable, crowding out spending on other vital areas including education for the young.
The triple lock has many faults. It is confusing for pensioners, making it harder for them to plan their budgets.
It also creates unpredictability for the Government when it tries to forecast and plan the public finances.
The policy was introduced under David Cameron in the 2010 Budget, when inflation was low and the economic environment was markedly different
A precedent was set during Covid, showing that the triple lock is not totally sacrosanct. For the year starting in April 2022, state pension increases were pegged to inflation at 3.1 per cent rather than earnings at 9 per cent. But it was restored last year pushing up pensions by more than 10 per cent.
Unless he has suicidal tendencies for the next election, Mr Sunak will stick with the guarantee for the time being. In the long term, it is unsustainable – but it will be a brave politician who calls time on it.