The Organisation for Economic Co-operation and Development (OECD) has issued a stark warning to incoming Prime Minister Andy Burnham, urging him to scrap the triple lock on state pensions amid rising numbers of jobless youths and economically inactive adults.
Triple Lock Under Threat
The triple lock, a long-standing pledge by the Department for Work and Pensions (DWP), guarantees that the state pension increases each year by the highest of average earnings growth, inflation, or 2.5%. However, the OECD's latest review highlights that the rise in NEETs—16 to 24-year-olds not in employment, education, or training—is undermining the system's sustainability.
According to the OECD, the surge in NEETs means one million people are no longer paying taxes needed to fund retirement benefits. Additionally, 9.1 million adults of working age are economically inactive, neither working nor seeking a job—an increase of nearly 700,000 since the eve of the Covid pandemic.
OECD's Critique
The OECD described the triple lock as "unusually generous" in its report released on Wednesday. "On top of adding upward pressure on public expenditure, the triple lock amplifies fiscal uncertainty by increasing the sensitivity of pension spending to earnings and inflation shocks," the organisation stated.
"Subdued employment could start weighing on the sustainability of state pensions," the OECD warned. It added: "Reforming the triple lock is necessary to reduce fiscal risks but requires careful preparation and consideration of public acceptability."
Welfare Spending Concerns
The OECD noted that welfare spending accounts for 11% of GDP and has increased significantly since the pandemic, projecting continued growth faster than nominal GDP. "Spending on health and disability benefits has become a major driver of welfare expenditure growth," the report said.
To address these issues, the OECD proposes tightening eligibility for health-related benefits from the DWP and increasing skills support to help claimants find work. The think tank acknowledged that the Government has attempted modest reforms but "has been constrained due to political pressure."
Impact on Burnham's Agenda
The warning presents a significant challenge for Burnham as he prepares to take office. The triple lock has been a popular policy among pensioners, but the OECD's analysis suggests it may be fiscally unsustainable in the long term. Burnham will need to balance electoral considerations with the need for fiscal responsibility.
