The DWP has issued an update on the future of the state pension Triple Lock after fears were raised by experts over its long term viability and possible scrapping.
The Triple Lock is a system which sees those on the state pension handed an increase in their pension benefits payments every year in order to protect against the impact of inflation.
The system works by increasing the money given to state pensioners every new financial year by one of three metrics: the same as wage growth, the same as CPI inflation, or a flat 2.5 percent, whichever is highest of the three.
But many financial experts across the political spectrum think its days are numbered in the medium to long term.
The Office for Budget Responsibility has previously identified the triple lock as a “fiscal risk”. This is due to its so called ‘ratcheting effect’, which leaves public finances exposed to higher pension costs.
The Institute for Fiscal Studies says that the triple lock makes planning the government’s finances difficult because the combination of its three components is difficult to forecast, as is the exact number of recipients with a full National Insurance record claiming the full state pension, and the number of years they will be claiming for.
Their current estimates for spending on the triple lock by 2050 range from £5 billion to £45 billion per year due to that uncertainty.
Sir Steve Webb, the former Pensions Minister who oversaw the introduction of the triple lock, suggested last year that the policy could be removed once the State Pension reaches a “reasonable” share of average earnings, a system he called the ‘double lock’.
This week, Pensions Secretary Liz Kendall put out an update on the Triple Lock, reaffirming Labour’s commitment to it, following the removal of the universal £300 Winter Fuel Payment.
Ms Kendall admitted that new figures show the change to Winter Fuel Payments will plunge as many as 50,000 pensioners a year into poverty, but there appears to be no change in the decision to axe the payments for most pensioners despite this.
Kendall admitted that the numbers represent only the impact of the Winter Fuel Payment and nothing else.
She went on to add that the government has seen an increase in the number of people claiming Pension Credit, with a 152 percent rise in claims to enable pensioners to get their Winter Fuel Payment back, as well as ‘extra financial support’ with the £150 Warm Homes Discount.
But she insisted that the changes will secure the future of the Triple Lock too, adding: “Means-testing Winter Fuel Payments was not a decision this government wanted or expected to take.
“However, we were forced to take difficult decisions to balance the books in light of the £22 billion black hole we inherited. Given the dire state of the public finances, it’s right that we target support to those who need it most while we continue our work to fix the foundations and stabilise the economy – which is the best way to support pensioners in the long term and is what has allowed us to deliver our commitment to the triple lock.”
