Colin Richardson, Senior Corporate Actuary at Buck Consultants, comments on the need to question the sustainability of the ‘triple lock’ guarantee:
“The lack of sustainability associated with the ‘triple lock’* boils down to a combination of factors, including: a severely decreasing ratio of earners in the workplace compared to those receiving state pensions and a formula making it certain that the state pension rises as a proportion of average earnings.
“The ratio of workers to over 65s is set to fall by up to nearly 40%** but the projections vary according to how fast the State Pension Age rises. With earnings falling in real terms in recent years, the state pension has become higher as a proportion of average earnings. This looks set to continue in the near term and the state pension may end up considerably higher, compared to average earnings.
“Whilst this is politically very difficult for all parties, they will each need to set out their policy response before the next general election in terms of all the component parts of pensioner benefits. Recent announcements show that these are being considered internally but with different suggested proposals. The central theme for all parties remains the same however, in terms of the lack of sustainability of current pensioner benefits and formulae, such as the triple lock.
“The status quo is starting to become politically difficult not just for the pensioner vote but also the non-pensioner vote. As the reality bites that projected spending on pensioner benefits is set to rise much higher than expected, hard decisions will need to be taken.”
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