The government has pledged to keep the "triple lock" on the state pension until the end of this parliament, after Ros Altmann, the former pensions minister, argued it should be scrapped after 2020.
Altmann, a casualty of Theresa May's government shake-up last month, has refused to slip out of the political spotlight quietly, instead criticising the government for prioritising "short-term political considerations". In her latest attack, she has accused politicians of failing to make difficult decisions regarding the sustainability of current increases to the state pension.
Introduced by the coalition government in 2010, the triple lock guarantees that the state pension will rise each year by inflation, average earnings, or 2.5% whichever is higher. However, Altmann argued that "the triple lock has fulfilled its purpose". It has become an "easy symbol" for politicians to point at to claim they are looking after pensioners, rather than engaging in "carefully considered policy reform".
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Instead, Altmann suggested shifting to a new "double lock", which would increase the state pension by inflation or average earnings, but exclude the 2.5% benchmark. "If, for example, we went into a period of deflation where everything both earnings and prices was falling, then putting up pensions by 2.5% is a bit out of all proportion," she said.
Indeed, given that inflation is running at well below 2.5% in June it was 1.6% on the older retail price index (RPI) measure and 0.5% on the official consumer price index (CPI) measure pensioners are clearly already getting a helpful income boost from above-inflation increases to their pensions.
A spokesperson for Theresa May said the commitment to protect the triple lock "still stands". However, there have been a number of hints that May might be prepared to reconsider the policy when the party fights the next election. The prime minister has already made it clear that she is interested in tackling a "growing divide between a more prosperous older generation and a struggling younger generation". And last November, her joint chief of staff, Nick Timothy, recommended that re-thinking the triple lock was an "obvious alternative" to further welfare cuts.
The Resolution Foundation think tank, which has set up a commission on intergenerational fairness, has calculated that by 2020 tax and benefit changes will have taken £1.8bn from millennials and handed £1.2bn to baby boomers. And an official report from the government Actuary's Department hastily buried after being published in error last year estimated that the triple lock was costing the taxpayer around £6bn a year.
All in all, the future may not be assured for the triple lock. Still, it's likely that retirees will have until 2020 at least to take advantage of the 2.5% clause. As another former minister, Steve Webb, says in Money Marketing, "it would be odd for a government which included the promise in its last manifesto and wants to be re-elected at the next election to prioritise a cut which would affect the most powerful voting bloc in the country".
-
A junior ISA could turn your child’s pocket money into thousands of poundsPersuading your child to put their pocket money in a junior ISA might be difficult, but the pennies could quickly grow into pounds – and teach them a valuable lesson about money
-
Cost of Christmas dinner jumps 6.5% as grocery price inflation rises againThe average Christmas dinner for four now costs £32.57 as grocery price inflation increases - but what does it mean for interest rates?
