Key points:
Debating whether to keep or abandon the triple lock overlooks a bigger issue: we are not saving enough for retirement so the state pension will still need to increase faster than inflation or earnings whether or not we have it
Overall savings shortfalls will be far greater than any cost savings from removing the Triple Lock
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
The Triple Lock has cost the government £1.8-2 billion over seven years compared to the Double Lock approach, which is insignificant compared to the £8 billion per year which will ultimately be saved by the introduction of the new Single Tier pension
We need to properly incentivise retirement savings rather than tinkering with the pension system
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 any 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 compared to the Double Lock. 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.”
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