The International Longevity Centre (ILC) has called on the government to ‘take care’ with the UK’s welfare system after the Work and Pensions Select Committee (WPSC) proposed scrapping the state pension ‘triple lock’.
In its ‘Intergenerational Fairness’ report, which was published today, the committee recommended the government “benchmark the new state pension and basic state pension at the levels relative to average full-time earnings they reach in 2020”. It added: “The triple lock should then be replaced by an earnings link.”
Introduced by the coalition government in 2012, the triple lock has ensured the state pension has risen every year by the highest out of inflation, earnings growth or 2.5%. Last year, the Conservative government pledged to keep the policy in place until 2020.
Responding to the report, ILC director David Sinclair (pictured) said: “As our society ages we need to adapt our welfare state to ensure its sustainability and long-term survival. But while it is right to debate cuts to pensioner benefits, we must take care not to throw the baby out with the bathwater.
“Within the next decade we are likely to see average pensioner income start to fall. We must ensure public policy protects the income of tomorrow’s poorest pensioners, particularly those who won’t have any private savings at all.”
AJ Bell senior analyst Tom Selby said that while the government would be wary of breaking its manifesto promise before the 2020 general election, the triple lock “was never meant to be a permanent measure and costs the Exchequer billions”.
He argued the policy had “at least partly restored some of the value” lost since then Conservative prime minister Margaret Thatcher decided to scrap the earnings link for the state pension in 1980 but concluded: “Beyond 2020, the triple lock’s future looks bleak.”
Last year, OECD employment, labour and social affairs directorate deputy director Mark Pearson described the triple-lock as “one of the most bizarre policies” implemented in UK pensions for a long time.
He said that while the triple lock set the UK apart from other countries and helped the pensions system “look good on paper”, economic difficulties could undermine the initiative.
‘Intergenerational contract’
Today’s WPSC report opened by noting “the economy has become skewed in favour of baby-boomers and against millennials” and highlighting the strain economic and demographic circumstances have put on the “intergenerational contract”, whereby “the current pensioner population is funded by the taxes of the current working-age population”.
The triple lock was acknowledged as one such strain on national income, with the WPSC concluding it was “unsustainable”. The committee called on the government to consider a new earnings link ahead of the next general election.
Among other possible solutions put forward, the WPSC suggested more housebuidling and better property distribution, arguing: “Alongside housebuilding, there is a strong case to consider innovative policies to encourage downsizing and to more efficiently distribute the existing stock.”
‘Not young v old’
The ILC’s Sinclair also argued the debate must not be about “young versus old”, continuing: “Government and businesses must focus on ensuring our economy can better support an increasingly older consumer and worker.
“We must improve workforce productivity and create meaningful employment for all ages. There is a very strong case to invest in education for young and old alike.”
On housing, he commented: “Increasing the number of new homes being built will benefit young and old. Government must prioritise housing investment to ensure older people have places to move to and younger people can get onto the housing ladder.”
A spokesperson for the Department for Work and Pensions said it would formally respond to the WPSC’s report in due course, adding: “We want to ensure economic security for people at every stage of their life, including retirement. We are committed to the triple lock, which is protecting the incomes of millions of pensioners.”
The WPSC’s report, Intergenerational Fairness, can be read here
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