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The triple lock is a glaring omission from the scope of the newly announced pension commission, says Jamie Jenkins
There is much to cheer with the formation of a second pensions commission.
The Pension Schemes Bill sets out the strategic direction for retirement saving over the next five years, and the Pensions Commission is largely tasked with looking at the decades that follow.
There are a number of initiatives which will help people with their pension decisions in the near term, as Generation X follows in the footsteps of the Baby Boomers into retirement. But at the other end of the spectrum, we need to define the ‘retirement contract’ for Generation Y and Z.
My son is seven, part of Generation Alpha, as it’s often called. He is unlikely to retire for several decades, but to enable that, he’ll have to start considering the prospect much sooner.
Retirement saving policy demands a very long-term plan, and we will hopefully now see some political consensus on that again.
While nothing can be set in stone over such a long period, a baseline plan for retirement saving will help people understand what is ahead of them. Any plan should broadly set out the role of the State, the help you get from your employer and the onus on individuals to save for themselves.
The Pensions Commission is tasked with this very conundrum, particularly in relation to the role of employers and what they contribute, alongside the onus on employees to make their own provision.
However, there is a glaring omission in the scope, with the ‘triple lock’ being excluded from this analysis. The role of the State Pension is pivotal, both in terms of the age at which it is paid (which is part of the review) and the level at which it is set (which is essentially excluded from the review).
The ‘triple lock’ was introduced in 2010 to address the gradual loss of value in real terms that preceded that. Using the highest of three measures each year to uprate the State Pension means that, over time, it rises faster than both wages and inflation, regaining its lost value.
The Government has committed to its continuation over the course of this parliament, similar to its predecessors in recent years. However, it’s clear that it can’t continue to rise indefinitely, both on the grounds of affordability and in terms of fairness.
It will be very difficult for any party in power to call an end to the triple lock, given its understandable popularity with pensioners.
However, this may be the wrong question to ask. Perhaps a better question is to consider what it is trying to achieve.
The full State Pension is already around one third of average earnings. Is the target to increase that to half of average earnings, and is that sustainable and fair? In the absence of any plan, it will head to that level over time anyway.
This will be a fundamental aspect of the ‘retirement contract’ for future generations, but one which looks like it will remain unanswered, at least for now.
Jamie Jenkins is director of policy at Royal London