The Intergenerational Foundation has issued a stark warning to Prime Minister Andy Burnham, urging him to scrap the state pension triple lock and replace it with a more sustainable mechanism. In its response to the Second Pensions Commission Interim Report, the think tank argues that the current policy is driving up expenditure in an arbitrary and unpredictable manner.
Proposed shift to inflation-linked increases
The Foundation recommends capping annual pension increases at CPI inflation through to 2030-31, after which rises would be pegged to a blend of inflation and earnings growth. This would effectively transform the triple lock into a double lock, tied to the higher of wage or price inflation.
"Replace the triple lock with a more stable and sustainable uprating mechanism. IF's preferred reform is to cap State Pension increases at CPI inflation until 2030-31, and then uprate the State Pension by the average of inflation and earnings thereafter," the report states.
Fiscal sustainability concerns
The think tank's analysis highlights that the triple lock, which guarantees increases by the highest of CPI inflation, earnings growth, or 2.5%, is financially unsustainable in the long term. National Insurance contributions (NICs) receipts only grow with earnings, while benefit expenditure rises faster, creating a widening gap.
"The 2020 Quinquennial Review estimates that the triple lock will increase State Pension expenditure by 24% by 2085 relative to 2020. Unpicking the triple lock would therefore also be a substantial step towards making the State Pension more sustainable in the long term," the report warns.
It adds: "The triple lock therefore causes benefit expenditure to increase relative to contribution income in the long term, threatening the fiscal sustainability of the scheme. IF recommends reforming the triple lock to a double Lock, whereby the State Pension is uprated in line with wage or price inflation, whichever is higher. This reform would be a significant step towards making the State Pension more sustainable in the long-run."
Burnham's stance and broader reforms
Despite the pressure, Mr Burnham has reaffirmed his support for maintaining the State Pension triple lock, describing it as an important commitment to pensioners. He has also highlighted the need for long-term reform of health and social care, recognising the importance of creating a more sustainable system to meet growing demand.
The Prime Minister's position comes as John Healey returns to the cabinet as chancellor of the exchequer, less than two months after quitting as defence secretary. A former Treasury minister, Healey had recently attacked what he called a "Treasury orthodoxy that's a dead hand on dynamic government" that viewed defence as "a drain rather than a driver of growth".
