"A ‘middle way’ approach would preserve the triple lock for those who reached pension age under the old state pension system, whilst reverting to an earnings-link for the newly retired."
In response to suggestions that the policy be abolished outright because of cost pressures, Royal London proposes a way which would control costs and focus more generous annual increases on the pensioners who need it most.
Royal London proposes that the government retains the triple lock for all pensioners on the old ‘basic state pension’ (those who retired before 6th April 2016) but reverts to earnings indexation for those on the new state pension.
The change would save around £500m per year by 2021/22, rising to nearly £3 bn per year by 2027/28, and because newly retired pensioners are on average £100 per week better off than those aged over 75, this policy increasingly focuses money on the older, poorer group. It would also deal with an anomaly whereby the triple lock is of more value to newly-retired pensioners than to older pensioners.
This anomaly arises because the triple lock applies only to the old basic state pension (currently £122.30 per week) for those who retired before April 2016 but to the full new state pension (currently £159.55) for those on the new system.
The other two points in the plan include getting the self-employed into pensions by extending automatic enrolment, as well as getting employees to save realistic amounts through annual step-ups in contributions.
Royal London Director of Policy, Steve Webb, said: "The triple lock has delivered big improvements to pensioner incomes since 2010 but political parties will be concerned about the long-term cost implications of this policy on top of increased spending on health and social care associated with an ageing population. On the other hand, abolishing the triple lock outright would leave many existing pensioners on relatively modest incomes, with older pensioners facing much lower living standards than the newly-retired. A ‘middle way’ approach would preserve the triple lock for those who reached pension age under the old state pension system, whilst reverting to an earnings-link for the newly retired. This would cap the cost of the triple lock whilst focusing spending increasingly on the older and poorer section of the pensioner population.
"To complement the state pension, we need to see high levels of saving into workplace pensions and more people saving into a pension. We therefore advocate an annual step up of contributions by the employed population, with contribution increases timed to coincide with pay rises. This is likely to be the least painful way of getting people to save more. We also want to see a form of automatic enrolment applied to the self-employed, given the dramatic increase in pension membership when a similar approach was taken for employed earners."
