Time to scrap the “Triple Lock”

The Pension Burden: The single biggest line item in the welfare budget is the state pension (exceeding £145 billion). Protected by the “Triple Lock” mechanism—which ensures pensions rise by inflation, average wage growth, or 2.5%—pension spending has climbed steadily despite high inflation waves.

As a Pensioner I want my Pensions to retain their purchasing power. If they don’t I get poorer, which is not an attractive prospect! To do this the pension provider needs to link the pension to inflation. In my case my pensions from my employment are linked to the Retail Price Index. My State Pension is linked to the (usually lower) Consumer Price Index. We can argue about which index to choose (there are others) but the principle is the same. My pensions are broadly inflation proofed.

The Triple Lock uses the State Pension as a vehicle not just to inflation proof payments but potentially to increase the purchasing power of the pension. The link to “average wage growth” effectively says that if wages and salaries increase more than inflation so should pensions. This makes little sense. We pensioners have no right see our pension income keep in line with the earnings of those in employment. Why should we? 

The 2.5% alternative, only to be applied in low inflation or low wage growth times, is equally perverse. This implies that pensioners should see their pension income exceed inflation or wage growth by an arbitrarily applied percentage. In other words get richer compared to those in employment. 

Over the past 14 years in only four of them has inflation been the determining factor for pension increases:

•  Average Wage Growth: 6 times
•  Inflation (CPI): 4 times
•  The 2.5% Guarantee: 4 times

So in effect the “Pension burden” has increased and governments have facilitated increases not justified by inflation. 

Many argue that the UK State Pension is too low, for example when compared with other European countries.  However the overall UK retirement system relies much more heavily on occupational and private pensions than many continental European systems. That said it is certainly the case that The UK generally provides a middling-to-below-average state pension by European standards.

So there is a strong argument that the State Pension is too low. But, in my view, there is no case for distorting the annual pension increase system to correct this. The quantum of the State Pension should be under review at all times and changes made , but only when it is judged that we can afford them. So stick with mandated inflation proofing, but scrap the triple lock!