MPs looked at several ways to change the triple lock
State pension payments increase in April in line with the triple lock(Image: Getty)
MPs have discussed potential replacements for the triple lock mechanism with retirement experts. The policy continues to drive up the state pension bill. Thanks to the triple lock, payment rates go up each April in line with whichever proves highest: 2.5 per cent, average earnings growth or inflation.
The DWP has paid out substantial triple lock rises in recent years, including a 4.1 per cent uplift this past April, following an 8.5 per cent boost in April 2024. Pensioners enjoyed a record 10.1 per cent increase in April 2023, driven by high inflation levels.
During a Work and Pensions Committee session, pension experts put forward potential changes to the triple lock arrangement. Proposals put on the table included introducing means-testing for state pensions, having a wealth test, or switching to a state pension increase model similar to what other countries do.
Inflation protection
Jonathan Cribb, deputy director at the Institute for Fiscal Studies, cautioned that the existing framework creates uncertainty around state pension increases. He said: “I’m a critic of the triple lock not because it generates a higher state pension but because you have no idea what level of state pension it’s going to be.
“The fact that’s it been so impactful over the last 15 years is entirely a function of how volatile macroeconomic growth and inflation have been.” Nevertheless, he told the committee there is a need to ensure payments rise sufficiently to shield pensioners from increasing living costs.
He explained: “I think it’s important to provide pensioners with inflation protection from year to year because they don’t have some of the other ways of responding to falls in income that younger groups do.”
Reduced payments
Chris Curry, director of the Pensions Policy Institute, also shared his thought with the committee on how the state pension system could be changed. He discussed the prospect of tailored support whereby certain claimants would receive more than others.
He noted: “You could target additional support to particular groups although as we’ve found in the past with means testing, that can be difficult if it requires claiming. You don’t always reach the people who you want to reach because there tends to be a gap between the people who need it and the people who receive it.”
The policy specialist also presented the idea of a means-tested approach: “The other way is to reduce the amount that goes to others, through either a means test or a wealth test. I think both of those have their challenges. There is always a trade off between complexity and simplicity.”
He warned that bringing in such changes might jar with the idea that people have contributed towards their state pension throughout their working years. You typically need 35 years of National Insurance contributions to qualify for the full new state pension.
Mr Curry said: “One of the big challenge in all of this is people’s perception of fairness. When it comes to the state pension, people have a very specific idea of this is a benefit we have contributed to through National Insurance all our working lives. Anything which moves away from the fact that people should get at least some minimum amount is going to be difficult.”
Looking further abroad
Mr Cribb proposed that the Government might consider adopting another Anglosphere nation’s approach to deciding pension pay rises. He explained: “The Australian system is basically what I think we should have in terms of indexation, where in the long run the state pension would rise in line with average earnings.
“You protect temporarily individuals against inflation being very high by indexing in line with inflation, and what the Australians do is they keep that inflation indexation for longer so that in the long run, you still go up in line with earnings growth.
“It’s a little bit complicated to describe, but that’s essentially the idea. Protection against inflation in the short run, making sure that it keeps up with earnings growth in the long run.”