State pension triple lock could be scrapped by 2030, experts warn

The end of the triple lock pension could come as soon as 2030 due to the increasing cost to the public purse, experts have warned.

Politicians will probably have to scrap their commitment to the lock at the next election because of pressure on the public finances, highlighted in a recent report from the Office for Budget Responsibility (OBR), accountancy firm Blick Rothenberg claimed.

Other experts have said if the triple lock is not scrapped, it will at least be reformed with suggestions including a double lock or means testing it. Some have mooted an increase to the state pension age.

Labour has committed to the policy for this Parliament. The Conservatives and Lib Dems continue to support the lock but Tory leader Kemi Badenoch has hinted as reforms. Reform has so far not guaranteed keeping it.

Tomm Adams, a partner at Blick Rothenberg, said: “We will likely see the triple lock pension end when the current Parliament does, as the cost of providing it to the UK’s ageing population is increasing and government debt is rising.”

The OBR recently warned that the triple lock pension is set to cost £15.5bn by 2030, three times more expensive than originally expected in 2011 when it was brought in under David Cameron and Nick Clegg.

The triple lock policy was designed to ensure that the state pension would rise by whichever was highest out of inflation, wage increases, or 2.5 per cent, providing a guarantee that pensions would maintain their value over time.

However, there has been economic volatility in the UK due to wider world events, meaning the inflation-linked part of the triple lock has kicked in, but tax receipts and wages have not increased in line with that inflation.

Adams said: “Regardless of the next government, we will likely see an end to the triple lock and an increasing retirement age.”

Although it would be difficult politically to adjust, given its popularity with voters, experts say the issue must be addressed in the near future.

Sir Steve Webb, former minister and partner at LCP, said: “There simply isn’t a single year where suddenly the state pension is unaffordable. Why 2030 and not 2032 for example?”

Tom Selby, director of public policy at AJ Bell, added: “It is blindingly obvious the triple lock cannot continue for ever and at some point soon a government is going to need to come clean about that.

“Politically that is difficult but the alternative is allowing costs to build and then having to hike the state pension age further and faster, which will be even more painful.”

Options for changing the triple lock

There are several options of what could be considered to reform the triple lock.

Webb said if the Government feels it has to do something in this space, the “least worst strategy” would be to acknowledge the triple lock could not go on for ever but accept it will be extended past the election until the state pension reaches a target of perhaps a third of median wages.

After this point, he suggests they could lock the pension as a percentage of average earnings.

Webb added: “The opposition parties will still attack, but it would be surprising if any party in with a shot of winning the election promised to bring it back in their manifesto.”

Selby said: “The starting point should be spelling out what the triple lock is aiming to achieve, which is probably a certain portion of median earnings. Once you’ve done that, you can pledge to keep increasing to that level and then peg the state pension to a double-lock to earnings and inflation.”

Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said one option is seeing the triple lock become more of a double lock, perhaps removing the 2.5 per cent element.

Jon Greer, head of retirement policy at Quilter, said: “The triple lock should only end when the state pension has reached an appropriate proportion of mean full-time earnings.

“This level should be determined by a cross-party agreement, and once it is reached a new uprating mechanism should be introduced a committed to for the long term – tracking earnings growth with a carve out to protect retiree incomes during periods when inflation outpaces it – to provide retirees with clarity on their incomes.”

Currently the state pension is around 30 per cent of median earnings and is already 5 per cent of annual GDP and is set to increase in coming years.

Although this 5 per cent is low compared to other European jurisdictions such as Italy at 10.6 per cent and Spain at 8.9 per cent, the average British retiree only gets 22 per cent of their pre-pension salary from the state compared to 76 per cent in Italy and 80 per cent in Spain, according to Blick.

It comes as the Chancellor prepares to unveil a major shake-up of the UK’s pension landscape in her Mansion House speech next week.

A Treasury spokesperson said: “We are committed to supporting pensioners and giving them the dignity and security they deserve in retirement, which is why we committed to the triple lock benefiting 12 million pensioners and, as of April, the state pension is set to increase by around £1,900 over the course of this Parliament.

“We are committed to ensuring stability in the economy through our non-negotiable fiscal rules, which have allowed us to invest in the UK to drive a decade of renewal and put more money in people’s pockets.”