Should state pension triple lock be axed to help pay for the coronavirus crisis?

Should state pension triple lock be axed to help pay coronavirus bill? It’s ‘not too much to ask’ elderly to sacrifice £4bn a year, think tank claims

  • The triple lock guarantees the state pension rises by at least 2.5% a year
  • A move to a double lock would base future increases on wage and price growth
  • Pensioners have just had a 3.9% rise, matching earnings growth last summer 
  • ‘Society is making sacrifices to protect its elderly right now,’ says think tank
  • There is a clear case for ‘intergenerational reciprocation’ to meet costs of fighting coronavirus, it says 
  • Learn more about how to help people impacted by COVID

The ‘triple lock’ state pension guarantee should be sacrificed to help pay the gargantuan bill for fighting the coronavirus crisis, according to a think tank.

Elderly people have just received a bumper near-4 per cent rise in the full new state pension to £175.20 per week, or to £134.25 if they are on the old basic rate.

The triple lock means rises are decided by whatever is the highest of price inflation, average earnings growth or 2.5 per cent.

Pension promise: The Tories and Labour pledged to keep the triple lock guarantee in last December’s election

But this should be abandoned to ensure the economic recovery from the coronavirus crisis is fair to working-age households, says the Social Market Foundation.

A ‘double lock’ that dropped the 2.5 per cent promise would save £20billion over five years as growth in wages and prices are expected to be lower, suggests the research group, which says it is non-partisan and champions the ideas of the radical centre.

However, a double lock would still have meant a 3.9 per cent rise in the state pension this year, as it was set to match the rise in average earnings recorded last July.

The vast cost of virtually freezing the UK economy to fight the coronavirus was bound to reignite the debate about whether the triple lock is too generous, and if it is sustainable for today’s workers who fund it via National Insurance contributions.

But there is likely to be pushback from elderly people, who have paid contributions for the state pension during their own working lives, and are now threatened by a virus which is taking a brutal death toll on their generation.

Share the sacrifice, says SMF 

‘Quite rightly, society is making sacrifices to protect its elderly right now,’ says Scott Corfe, the SMF’’ research director.

‘There is a clear case for intergenerational reciprocation when it comes to meeting the fiscal costs of the crisis in the years ahead

‘The crisis has emphasised our obligations to other generations, even in the face of personal sacrifice. 

‘This spirit must be maintained when the dust settles – with the economic costs of responding to the crisis shared fairly across the generations.’

The Tories announced plans to scrap the state pension triple lock ahead of the 2017 election, but recommitted to it under a deal to stay in power struck with the Democratic Unionist Party. 

Both the Tories and Labour pledged to keep the triple lock in last December’s election.

‘The economic impact of lockdown policies is falling most heavily on working-age Britons, many of whom face redundancy followed by years of higher taxes, reduced services, and slow economic growth,’ says the SMF.

‘Lockdown policies have rightly been deployed to protect the lives and wellbeing of those most vulnerable to the virus, a group that includes older people.

‘To retain social cohesion and public support, fiscal policy should demonstrate “reciprocity” for that support.’

The SMF says the UK’s annual deficit could reach £200billion as we emerge from the crisis, so shaving £4billion a year from the growth of the pension bill ‘is not too much to ask’ from a group whose wellbeing was rightly prioritised during the lockdown period.

‘In the post-crisis world of slow, painful recovery, a triple lock ensuring a 2.5 per cent minimum rise in pensions would constitute enormous generosity to pensioners, at a time when working-age adults face low or no wage growth and significant unemployment.’

Ian Browne, pensions expert at financial services firm Quilter, says: ‘Reforms to the state pension triple lock have long been mooted around times of Budgets and general elections, but with the unprecedented times we find ourselves in it is rightly being brought up again as something that needs to be changed to ensure intergenerational fairness.

‘With the increased borrowing from the government to help pay for the coronavirus lockdown, there has arguably never been a better time politically to replace the triple lock as government finances come under increasing pressure.’

He adds: ‘Whether a “double lock” is the best system to introduce remains to be seen, as the outlook for inflation is uncertain just now and in the long run could just cost exactly the same as the triple lock.

‘Arguably the triple lock has worked well in reversing the relative decline in the state pension so that it has made up much of the ground it had lost relative to earnings during the 80s and 90s.

‘Going forward it should be linked with long terms earnings growth, otherwise there is a risk that the unusually swift ratcheting effect it had on the state pension from 2008 onwards could happen again in the exceptional economic times ahead.’

Browne says if there is no change to the triple lock it will put pressure on the Government to increase the state pension age, which would have greater harm on future generations.