The future of the triple lock has been called into question as an expert reveals each of the three metrics that form the policy can cause issues.
The triple lock guarantees the state pension increases with the highest of the rate of inflation, average earnings or 2.5 percent. Retirement specialist Gary Smith, from Evelyn Partners, said each of these three metrics raises questions around the fairness of the policy.
He explained: “Linking the state pension just to inflation would simply maintain its value in real terms while ignoring the gains the rest of society are making, leaving pensioners poorer compared to earners.
“Linking it just to average earnings is also regarded as unsatisfactory because those on low fixed incomes are very vulnerable to high inflation, and while workers have the chance to seek extra income or catch up losses in later years, a state pension that falls in real terms will hit the living standards of some of society’s most vulnerable.”
He said even the 2.5 percent increase has its problems in years where working Britons are not seeing their incomes grow.
Mr Smith said: “The 2.5 percent minimum increase might not sound like much but because of very low inflation it kicked in in four of the years since 2011/12. Critics wonder why, if inflation is running at one percent and earnings are hardly growing at all, the state pension should rise by more than twice inflation.”
State pensioners are on track for another large state pension increase next year, with payments increasing 8.5 percent in line with the average earnings figure.
Mr Smith said: “There’s no doubt the 10.1 percent increase in this financial year and the 8.5 percent increase due in April have focused attention on the triple lock – even though its defenders would say that is exactly why it exists, to protect pensioners against high inflation and to maintain their minimum living standard in line with wider society.
“It seems unlikely that increases of the same magnitude will follow in subsequent years but as noted, even without that, the expense of the state pension is huge and escalating so if the triple lock were to stay then something would have to give and that would probably be the state pension age.”
Increasing the state pension age also has its problems, the expert said. He warned thise could cause inequality in favouring those who live longer and are better off, while putting the state pension further out of reach for current working age Britons.
Mr Smith said: “The alternative is finding a mechanism that results in less dramatic increases in the value of the state pension, whilst also providing a decent minimum standard of living for retirees who rely on it and meeting generally accepted principles of fairness.
“A Labour Government might find it easier to address this as older cohorts tend to comprise less of their core support than is the case for the Conservatives.”
With the 8.5 percent increase from next April, the full new state pension will increase from £203.85 a week to £221.20 a week while the full basic state pension will increase from £156.20 a week to £169.50 a week.
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