The move to abandon the Triple Lock would be a big political bet with the potential to upset 7.5m voters**. Any cost savings would be short-term in the context of a looming savings crisis, according to Hymans Robertson.
Commenting Chris Noon, Partner at pensions and benefits consultancy, Hymans Robertson said: “The motivation to remove the Triple Lock and return to the former policy of Double Lock would be based on short-term cashflow considerations rather than sensible policy decision-making. It will come with big political risks, but more importantly the cost savings to Government will be insignificant in the context of the pressure building on the state pension due to huge savings shortfalls.
Discussing the cost of the Triple Lock to Government, he added: “The total cost of the Triple Lock since its introduction seven years’ ago has been in the region of £1.8-£2 billion. This is because there were three years (2013, 2015 and 2017) where the 2.5% underpin has applied. If inflation increases, which economists predict, this underpin, and the subsequent costs, will not be applied.
Explaining why the state pension will be under pressure to increase at a rate faster than inflation or earnings, he said: “As a nation people are not saving enough for retirement. Three quarters of DC savers will not be able to retire on an adequate income. The pressure on the state will increase considerably as we see greater numbers retire with DC pensions over the coming years as large numbers of these people will not have enough to live on in retirement.
“Adding to this, most people will receive a lower state pension as a result of the new Single Tier introduced last year. By the Government’s own calculations, this will save around £8 Billion (0.4%) of GDP per annum by 2060.
“‘Freedom and Choice’, will put even greater stress on the state pension as people have the ability to access pension pots from age 55 which they can run down. This will result in more people eventually relying solely on state pensions.”
Concluding, he said:
“As a nation we need to put long-term policy making ahead of short-term cashflow needs. And we need to truly incentivise savings rather than tinker with the system, kicking the can down the road for future generations to deal with.”
Key points:
If the Triple Lock is removed state pensions will still need to increase faster than inflation or earnings as we are not saving enough for retirement
Overall savings shortfalls will be far greater than any cost savings from removing the Triple Lock
It has cost the government £1.8-2 billion over seven years which is insignificant compared to the £8 billion per year which will ultimately be saved by the introduction of the new Single Tier
We need to properly incentivise retirement savings rather than tinkering with the pension system
* The Secretary of State for Work and Pensions, Damian Green, on ITV’s ‘Peston on Sunday’ (27/11/16) refused to commit to the state pension Triple Lock beyond 2020.
Philip Hammond stated it was irresponsible to commit to the Triple Lock beyond 2020 given other pressures on government funding in Treasure Question in the House of Commons (29/11/16).
**There are 10m individuals over State Pension Age with the highest voting prevalence
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