The future of the triple lock has been called into question after concerns that the current metric for the yearly state pension increase is unfair on younger generations.
Steven Cameron, Director of Pensions at Aegon, said the current system promotes certain imbalances. He said: “If the triple lock is left as is, over time, state pensioners will get higher increases than average wage growth. That lacks intergenerational fairness and it’s not sustainable.”
State pensioners have enjoyed large increases the past two years, with a record 10.1 percent boost to payments in 2023 thanks to soaring inflation, while they had an 8.5 percent increase last year in line with the rise of earnings.
The question of the state pension has come to prominence this week after Conservative Party leader, Kemi Badenoch, hinted at the idea of means-testing elements of the state pension.
When asked about the triple lock during a call-in show on LBC, she said: “We’re going to look at means testing. Means testing is something that we don’t do properly here.”
She said she has previously criticised the fact that wealthy people could get the Winter Fuel Payment, as this was previously open to most people of state pension age. The eligibility rules changed for this winter so now you have to be on a means-tested benefit, such as Pension Credit.
Ms Badenoch said: “We don’t have a system that knows who should get what. That’s the sort of thing that we should be looking at.”
Mr Cameron warned it would be “highly contentious” to switch to a means-tested model, as this raises the question of how would you carry out the means testing and how would people be able to predict how much they would get, given their situation.
Suggesting an alternative model, he said: “A fairer way might be to adapt the triple lock formula. Rather than increases each year being the highest of earnings growth, inflation or 2.5%, some smoothing could be introduced over time.
“Pensioners would receive an inflation increase as a minimum, and if over the previous three years wage growth has on average been higher than inflation, they’d get an extra uplift.
“This avoids widely fluctuating outcomes at times when both inflation and earnings growth are unpredictable, smoothing things out but ensuring pensioners still share in sustained increases in the nation’s wealth.”
Payments will increase 4.1 percent this April, with the average earnings figure used to determine this year’s increase.
This will lift the full new state pension from the current £221.20 a week to £230.25 a week, while the full basic state pension will go up from £169.50 a week to £176.45 a week.
Senior Labour politicians have also previously spoken out in favour of reform, with newly appointed pensions minister, Torsten Bell, previously stating the triple lock was “not a sensible mechanism for pensions uprating”.
Mr Cameron spoke of the need for politicians to discuss changing the triple lock before too long. He said: “While state pensioners should take comfort from the Government’s commitment to the triple lock for the term of this Parliament, its future longer term has to be in question.
“A future-focused debate looking at all options is needed. We’d call on the Government and politicians from all parties to step up, and rather vote scoring, seek a sustainable solution that’s fair across the generations.”
