DWP calls for abolition of state pension triple lock

The DWP committee enquiry has called for the scrapping of the state pension triple lock and proposes replacing it in 2020 with an earnings link combined with an inflation-proofing underpin.

Related topics:  Retirement
Rozi Jones
7th November 2016
Houses house of parliament commons government govt gov
"We recommend the Government benchmark the new state pension and basic state pension at the levels relative to average full-time earnings they reach in 2020."

The triple lock was introduced in 2012 and annually uprates the state pension by whichever of price inflation, average earnings growth or 2.5% is highest.

In its report on intergenerational fairness, the Committee admitted that it had "made a valuable contribution in increasing the relative value of the state pension" but that its retention would lead to "state pension expenditure accounting for an ever greater share of national income".

The report argues that the triple lock will have fulfilled its purpose of securing a decent minimum income for people in retirement to underpin private saving by 2020.

It continues: "We recommend the Government benchmark the new state pension and basic state pension at the levels relative to average full-time earnings they reach in 2020. The triple lock should then be replaced by a smoothed earnings link. In periods when earnings lag behind price inflation, an above-earnings increase should be applied to protect pensioners against a reduction in the purchasing power of their state pension.

"Price indexation should continue when real earnings growth resumes until the state pension reverts to its benchmark proportion of average earnings. Such a mechanism would enable pensioners to continue to share in the proceeds of economic growth, protect the state pension against inflation and ensure a firm foundation for private retirement saving. The new state pension and basic state pension it replaced would track average earnings growth in the long term. That is more fiscally sustainable and more intergenerationally fair."

Tom McPhail, Head of retirement policy at Hargreaves Lansdown, commented: “Politicians are chronically compromised when making any policy decisions which might be detrimental to older citizens. You only have to look at the turnout in general elections to understand why: 78% of the over 65s voted, compared to just 43% of the eligible under 25s. The Triple Lock has served an important function in bringing pensioner incomes back into line with the rest of the population. It is also important to recognise that pensioner incomes will change again in the future, we are about to hit ‘peak DB’ after which successive pensioners will be increasingly reliant on the state pension and on defined contribution arrangements. Any measure to curb either of these in the next few years could rapidly push more pensioners back into poverty.

“Younger workers need more help saving for the long term, they also have the potential to benefit from decades of compound investment growth. We’d like to see the government abolish some of the disincentives to save which bedevil the older generations, such as the Lifetime Allowance and the Annual Allowance Taper, whilst also directing its pension incentives more effectively by weighting them towards younger workers.”

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