The state pension triple lock system must be scrapped and replaced with a new four-point system, leading financial think tank the Institute for Fiscal Studies has announced today.<\/p>\n
A new report called The Pensions Review: Final Recommendations has controversially urged the government to abolish the current triple lock<\/a> state pension<\/a> system over concerns it will become unaffordable for the state, and instead replace it with a \u2018four point plan\u2019.<\/p>\n Currently, state pensions are guaranteed to rise every April by one of three factors: inflation, wage growth, or a flat 2.5%, whichever of those three is highest. This is known as the triple lock<\/a> system, and has been in place since it was introduced by the Conservative\/Lib Dem coalition government in 2010.<\/p>\n Reforms to pensioner benefits have proven to be hugely unpopular, as was seen with the change to the winter fuel payment<\/a> system, which has now been made much more generous for 2025<\/a> after a fierce backlash.<\/p>\n The IFS report suggests that an \u2018ageing population\u2019 will put pressure on the public purse, with the triple lock<\/a> identified as a key contributor to the problem. It goes on to add that simply increasing the state pension<\/a> age to help pay for triple lock<\/a> rises risks increasing poverty among those in their 60s as well as those with shorter life expectancy.<\/p>\n The IFS report says: \u201cAn ageing population places pressures on the public finances through increased spending on state pensions and in particular on health and social care. A generously indexed state pension<\/a> adds to these growing pressures. The \u2018triple lock<\/a>\u2019 increases the value of the state pension<\/a> in an unpredictable way and it could reasonably be expected to push up state pension<\/a> spending by anywhere between \u00a35 billion and \u00a340 billion a year in 2050 in today\u2019s terms.<\/p>\n \u201cRising state pension<\/a> ages have substantially pushed up the risk of income poverty among those in their mid 60s. Those reaching retirement in the private rented sector, increasing in number, are also at a heightened risk of poverty throughout their retirement.\u201d<\/p>\n It adds: \u201cRelying only on raising the state pension<\/a> age to rein in spending would hit those with lower life expectancy \u2013 disproportionately including many on lower incomes \u2013 harder.\u201d<\/p>\n The think tank then suggests a somewhat complex new model for pensions, focusing first on state pension<\/a> income as a percentage of typical full-time earnings, then on meeting inflation as a second priority. It stresses that the state pension<\/a> must not be means tested.<\/p>\n The IFS says: \u201cTo help with these challenges, we propose a \u2018four-point guarantee\u2019 for the state pension<\/a>. This is designed to give people more confidence and certainty over what they can expect their state pension<\/a> to provide; help them avoid old-age poverty; and provide a bedrock on top of which private pension saving can be built.<\/p>\n There will be a government target level for the new state pension<\/a>, expressed as a share of median full-time earnings. Increases in the state pension<\/a> will in the long run keep pace with growth in economy-wide average earnings, which ensures that pensioners benefit when the incomes of working-age households rise.<\/p>\n<\/li>\n Both before and after the target level is reached, the state pension<\/a> will continue to increase at least in line with inflation every year. Together with the first point, this means that the state pension<\/a> will follow a \u2018smoothed earnings link\u2019, as is used in Australia.<\/p>\n<\/li>\n The state pension<\/a> will not be means-tested.<\/p>\n<\/li>\n The state pension<\/a> age will only rise as longevity at older ages increases, and not by the full amount of that longevity increase. To increase confidence and understanding, the government will write to people around their 50th birthday stating what their state pension<\/a> age is expected to be. Their state pension<\/a> age would then be fully guaranteed 10 years before they reach it.<\/p>\n<\/li>\n<\/ol>\n The report adds: \u201cThe smoothed earnings link is an important improvement to the system. Retaining the triple lock<\/a> while raising the state pension<\/a> age would hit poorer people more because the loss of a year of state pension<\/a> income is more important for those with lower life expectancy, as they spend fewer years above the state pension<\/a> age. On the other hand, those with a higher life expectancy benefit relatively more from the triple lock<\/a>, as they are<\/p>\n The IFS says the new system could be phased in over time, with ‘political barriers’ like Labour’s manifesto pledge to keep the triple lock<\/a> which could prevent it being scrapped sooner.<\/p>\n It adds: “Reform is needed urgently, but that does not mean it all has to be implemented immediately. There are political barriers preventing an immediate move away from triple lock<\/a> indexation of the state pension<\/a>, but there is a good case for announcing sooner rather than later the target goal for the state pension<\/a> as a share of average earnings, which would allow policymakers to deliver a higher state pension<\/a> generated by the triple lock<\/a> in the short term and a pre-specified move towards a smoothed earnings link in the medium term. Changes to automatic enrolment should first be consulted on with schemes and employers to ensure a smooth implementation, but should be announced as soon as possible thereafter. These changes should then be gradually phased in, to give employers and employees time to adjust.”<\/p>\n","protected":false},"excerpt":{"rendered":"The state pension triple lock system must be scrapped and replaced with a new four-point system, leading financial…\n","protected":false},"author":3,"featured_media":34015,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[15],"tags":[28263,64,28262,255,28258,28260,28259,28261,67,132,68],"class_list":{"0":"post-34014","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-personal-finance","8":"tag-ageing-population-pressures","9":"tag-business","10":"tag-institute-for-fiscal-studies","11":"tag-personal-finance","12":"tag-state-pension","13":"tag-state-pension-reform","14":"tag-triple-lock","15":"tag-triple-lock-system","16":"tag-united-states","17":"tag-unitedstates","18":"tag-us"},"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@us\/114786631900135093","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts\/34014","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/comments?post=34014"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts\/34014\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/media\/34015"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/media?parent=34014"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/categories?post=34014"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/tags?post=34014"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}\n