The state pension triple lock may have helped retired workers to regain benefits lost in the 1980s and 1990s but “the pendulum has swung far too much in their favour” at the expense of today’s working population, according to Thomas Miller Investment wealth management MD Matt Phillips.
Commenting on the Intergenerational Fairness report, which was published yesterday by the Work and Pensions Select Committee (WPSC) and called for a review of the triple lock, Phillips said the policy’s 2.5% guaranteed rise in value stood out the most.
He added: “It means you are funding pensions going up and up in value but the working age population have to carry that burden, while also suffering themselves in the current economic climate.”
Aegon pensions director Steven Cameron agreed that reviewing the triple lock made sense in order to level the playing field between generations, as those in retirement had seen their income after housing costs catch up with the working population and some had also benefited from final salary pension schemes.
He added: “We believe any government should commit to state pension increases for its five-year period in power with its intentions set out in pre-election manifestos.”
‘Built-in time-bomb’
Old Mutual Wealth retirement expert Adrian Walker thought that while revisiting the triple lock policy was “logical and inevitable”, it would be surprising to scrap the legislation after only a few years and the government would therefore have to tread carefully not to “aggravate retired voters”.
Walker suggested, however, that finding a new earnings link in place of the triple lock may give a greater sense of fairness to the working-age population, as low wage growth and low inflation puts strain on this group.
He said: “Against that backdrop, some argue the triple lock is an unfair double standard. The current system will come under further pressure because the UK’s ageing population means we are heading toward a period where a smaller pool of working taxpayers must fund the state pension bill of a larger retired population.”
“Even small increases in state pension payments will have a big impact on public finances and this becomes more acute as the demographic shift develops over time. It is like a time-bomb built into the population.”
According to Standard Life head of pensions strategy Jamie Jenkins, the triple lock has served its purpose and continuing beyond the end of this parliament would make it unaffordable in the long term. “A return to a more natural link with earnings or inflation makes eminent sense,” he added.
Jenkins did argue, however, that a generational debate was a valid way of helping to dismiss assumptions around both the working and retired population. He said: “It is dangerous to assume, for example, all baby-boomers are well-off.
“Many people approaching retirement now have not benefited from generous defined benefit [DB] schemes as they worked for smaller firms that didn’t offer them, or indeed offer any pension at all.”
‘Missing generation’
Intelligent Pensions head of pathways Andrew Pennie agreed the triple lock served a purpose in playing catch-up with pension benefits, in order to avoid pensioner poverty, but added it was no longer sustainable.
He continued: “We should perhaps introduce a pensioner index that considers the real living costs of the retired population and adjusts pensions accordingly. This is more important than ever to address as we have a ‘missing generation’ – those who have not benefitted from a DB scheme and will not benefit from auto- enrolment.”
The post Triple lock reaction: “Pendulum swung too much” in favour of retired appeared first on Retirement Planner.