A pensions expert has voiced concerns that the triple lock “makes no economic sense” as he suggested an alternative model was needed.
Kevin Hollister, founder of Guiide, said that the state pension is “unsustainable” as it stands if you look just at simple demographics, as those above pension age make up a growing proportion of the population.
The actuary said the “first change” the Government should take to reform the policy is to scrap the triple lock. Mr Hollister explained: “It makes no economic sense and seems merely a political decision.”
Labour has committed to the triple lock for the length of this Parliament, saying this will mean payments increasing by up to £1,900 over the next few years. The triple lock puts up the state pension by inflation, average earnings or 2.5% – whichever is highest.
Payments will go up 4.1% in April owing to the triple lock mechanism, with the full new state pension increasing from £221.20 a week to £230.25 a week, a £472 a year boost.
Pensioners had a sizeable 8.5% increase last April in line with the earnings figure, and a record 10.1% surge in payments in April 2023 owing to soaring inflation.
Mr Hollister put forward an alternative model for setting the increase to the state pension. He said: “Increases would be much better to be linked to one factor, inflation plus real economic growth.
“That would mean workers and pensioners both benefit from economic growth, whilst protecting them from inflation.”
He explained how this would work during times when the economy is not performing well: “If real growth is negative the pension would reduce in real terms as it would be below inflation.
“This is likely to mirror workers salaries, who are ultimately the ones paying for any state pension increases through taxation.”
Other pensions experts have voiced concerns that the triple lock is unsustainable and can be seen as unfair on the working age population who funds the state pension.
Steven Cameron, director of Pensions at Aegon, said the current system promotes certain imbalances. He said: “If the triple lock is left as is, over time, state pensioners will get higher increases than average wage growth. That lacks intergenerational fairness and it’s not sustainable.”
He also presented an idea for a different metric, based on average increases with smoothed out figures. Mr Cameron explained: “Pensioners would receive an inflation increase as a minimum, and if over the previous three years wage growth has on average been higher than inflation, they’d get an extra uplift.
“This avoids widely fluctuating outcomes at times when both inflation and earnings growth are unpredictable, smoothing things out but ensuring pensioners still share in sustained increases in the nation’s wealth.”
To find out how much state pension you are on track to receive, you can use the state pension forecast tool on the Government website.
