Far from feather-bedding wealthy older people, the ‘triple lock’ on pensions increases is vital for future generations says Sally West.
In a surprise announcement at the start of 2014 David Cameron, the Prime Minister, said that maintaining the ‘triple lock’ for the basic state pension will be a key part of the Conservative’s next election manifesto. This would mean that, at least until 2020, the basic state pension would be increased annually by the rise in prices, earnings or 2.5 per cent – whichever is higher. In response the Labour leader Ed Miliband has also said he is committed to the triple lock.
Reaction has been variable. Some newspapers immediately suggested this would affect other benefits such as the winter fuel payment – the Daily Mail’s headline was ‘Turmoil over OAP benefits’. The Independent welcomed the announcement but said it does not go far enough pointing out that the basic pension is still only £110 a week.
Alternatively, others have focussed on what this means for younger people with the Intergenerational Foundation stating the move is unaffordable and ‘betrays’ the younger generation.
The real impact of the triple lock
So what impact does it actually have? By April 2014 the Coalition’s commitment to the triple lock means the basic state pension will be £113.10 a week – around £8.50 a week higher than if it had been increased in line with earnings, and around £2 a week higher than if it has been linked to prices rises.
Other parts of retirement income are not of course increased by the triple lock – savings income is low and private pension income may not even keep pace with inflation. So for current pensioners, while the basic pension on its own is still not enough to live on, the triple lock has provided an important boost in difficult times and helps ensure that the value of at least one part of their income is maintained. This is why Age UK has been campaigning for all parties to commit to the triple lock going forward and is very supportive of the recent announcements.
But we are also concerned about the position of future pensioners. Legislation before Parliament replaces the current complicated state pension system with a new single-tier pension for people reaching state pension age on or after 6 April 2016. All the Government’s analysis on the impact of the new pension assumes it will be increased by the triple lock – but this is not set out in the legislation.
Unless this happens younger people will find it much harder to build up an adequate retirement income. The independent Pensions Policy Institute calculates a younger person with lower earnings has a 63 per cent chance of achieving an adequate retirement income if the state pension is increased by the triple lock, but this could fall to 36 per cent with an earnings link.
So far from the triple lock being unfair to younger people, if there is a commitment for it to apply to the new state pension, as well as the current system as Age UK is calling for, it could make all the difference to today’s younger generation.
It’s especially important to those struggling with low wages who can make limited private pension savings. Without the triple lock, they could find the value of their state pension – when they eventually receive it – has been eroded and is too low to enable them to achieve a comfortable retirement.
Sally West is Strategy Adviser for Income & Poverty with Age Scotland partner Age UK.