DWP State Pension Triple Lock warning it could be replaced with 'double lock' and lower payouts
The Triple Lock guarantees a minimum annual increase in state pension benefits and is a system of increasing the state pension payments every new financial year by the highest of three key metrics
by Alex Evans · ChronicleLiveFinancial experts have warned that the state pension triple lock, which provides additional funds to pensioners each year, could be replaced with a less beneficial 'double lock' in the future. The Triple Lock system increases the amount given to state pensioners every new financial year by one of three metrics: wage growth, CPI inflation, or a flat rate of 2.5 percent, whichever is highest.
Despite Labour's manifesto promise to retain the Triple Lock, experts across the political spectrum believe it is at serious risk in the long term, regardless of the government in power. The decision to means test the Winter Fuel Payment has sparked outrage, but many believe the Triple Lock may also need to be modified in the future to manage the cost of an expanding, ageing population claiming pensions for an unpredictable duration.
The Office for Budget Responsibility has previously labelled the triple lock as a "fiscal risk" due to its 'ratcheting effect', which leaves public finances vulnerable to increased pension costs.
Experts at the Institute for Fiscal Studies have highlighted that the government's budgeting is complicated by the triple lock guarantee on pensions due to the unpredictability of its three components. They also struggle to project the precise number of eligible recipients with full National Insurance records and the duration they will claim the state pension.
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Consequently, estimates of the expenditure resulting from the triple lock by 2050 vary drastically, spanning from £5 billion to a substantial £45 billion annually, reports the Express.
The Financial Times has suggested that the State Pension could be more equitably and sustainably increased in line with earnings growth alone, advocating a ‘single lock’ system based on wage increases. Additionally, the Organisation for Economic Co-operation and Development (OECD) has proposed that pensions should consider the mean earners' growth and Consumer Price Index (CPI) inflation, with additional targeted support for poorer pensioners, according to the House of Commons Library.
Sir Steve Webb, who as Pensions Minister was instrumental in establishing the triple lock, has posited that this policy might eventually be replaced once the State Pension constitutes a "reasonable" proportion of average earnings – about one-third. At that point, a 'double lock', which would be either an earnings link or paired with another measure, could be introduced.
The former Minister shared with the i: "Once the state pension is a reasonable share of average earnings perhaps around a third you could then have an earnings link or a double lock."
"When we started in 2010, the pension had been linked more-or-less to prices for 30 years. This resulted in things like the notorious 75p a week pension rise in 2000, followed by £5 in the year of 2001."
"If you think about the purpose of a pension it is to preserve your standard of living when you no longer have a wage. If pensions are linked only to prices, and assuming wages generally rise faster, this would mean that the state pension falls steadily as a share of your pre-retirement income, and therefore becomes less and less adequate to do its job."
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