The future of the national pension’s triple lock is being called into question as the increase in benefits has been deemed “unsustainable”.
A new report from the Institute for Fiscal Studies (IFS) proposes replacing the triple lock with a “four-point pension guarantee”.
The recommendations come amid concerns about what the average retirement payout for Britons will be, given the National Pension burden that will be borne by taxpayers.
Under the triple lock, benefit payment rates increase by either inflation, average income, or 2.5%. whichever is higher.
Pensioners are worried about the future
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Last year, the national pension increased by 10.1% and is expected to increase by a further 8.5% in April next year.
If the IFS “Four Point Pension Guarantee” is implemented, this will mean:
- Long-term increases in the national pension will keep pace with growth in average incomes once payments reach the target level.
- The national pension will continue to grow at least in line with inflation
- National pensions are not subject to any means test.
- The national pension will only increase if people live longer in old age.
Gary Smith, partner and retirement expert in financial planning at leading UK wealth manager Evelyn Partners, called for “new thinking” when tackling issues related to triple locks.
Retirement experts praised the report for highlighting the need for reform, but were unsure whether the guarantee would be successful.
He explained: “Some of the state pension increases under the triple lock have been found to be too generous and fiscally unsustainable, which is certainly debatable.
“However, for example, the company’s proposed ‘double lock’ of ‘earnings sliding with inflation protection’ will result in a 10.1% increase determined by the triple lock for the current financial year and an 8.5% increase scheduled for April. It is not clear how to moderate the % increase, as the former depends on inflation and the latter on earnings.
However, Mr Smith pointed out that the IFS stressed that the new model would use “median full-time income”.
Pensioners receive a salary increase every year
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Retirement experts have called for a rethink of how government pay rates are calculated over the long term.
Mr Smith added: “However, at the moment, even from a perception of fairness and affordability to people’s wallets, if there is a problem with the level of increase in SP in the next few years, it is rather due to factors of inflation and average income. Make triple lock measurements to see how it changes.
“Using September CPI inflation and average earnings growth including bonuses both seem somewhat arbitrary and are likely to yield results that are temporarily unpredictably higher or lower. ”
