The state pension triple lock is trapping Britons in a “viscous cycle” as working-age people find themselves paying more tax to pay for older generations and unable to save for retirement, a leading economist has warned.
Tom Clougherty, the executive director of the Institute of Economic Affairs (IEA), is among the many analysts sounding the alarm over the payment uprate mechanism’s growing cost.
Speaking exclusively to GB News, Mr Clougherty reminded MPs and the British public that “we can’t keep pretending we can afford everything we’ve promised” and workers “face huge tax rises in the future” if the triple lock remains in place.
Since its introduction in 2010 by the Conservative-Liberal Democrat coalition Government, the triple lock has ensured state pension payment rates rise annually by either the rate of inflation, average wages or 2.5 per cent; whichever is highest.
The state pension is trapping Britons into a ‘viscous cycle’, a leading economist has warned
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According to figures from the Office for Budget Responsibility (OBR), the retirement benefit is costing around £10billion more than initially forecast; contributing to Britain’s ballooning benefits bill.
Mr Clougherty shared: “The triple lock was meant to be a small political flourish. It’s turned out to be three times as expensive as the OBR expected when it was introduced in 2010.
“The assumption was that earnings growth would normally outpace inflation, so the triple lock would mostly just track wages,” he says. “Instead, weak wage growth and volatile inflation have meant the pension has risen much faster than expected, and faster than average earnings.
“Over the 2010s and into the 2020s, the state pension has grown sharply as a share of earnings. The result is that working-age people are paying ever-higher taxes to support retirees — and have less left to save for their own old age. It’s a vicious cycle.”
The UK’s falling birth rate and ageing population is also contributing to the country’s fiscal woes, according to the free market think tank’s executive director.
He added: “Between now and 2070 the population is going to get much older, and we’re set to spend about 11 percentage points of gross domestic product (GDP) more on age-related costs — roughly £200billion a year in today’s money. That’s like doubling every income-tax bill in the country.”
“I’d be very surprised if people in their twenties and thirties ever get to experience a triple-locked pension themselves. It simply isn’t sustainable unless we get a sudden and sustained boom in economic growth.
When asked whether the Labour Government could realistically reform the triple lock within this Parliamentary term, Mr Clougherty cited the “political trouble” Chancellor Rachel Reeves ran into over changes to Winter Fuel Payments.
The economist said: “There’s room for subtle reform. You could roll smaller pensioner benefits into the state pension — people get a short-term boost, but you gain space to adjust the uprating formula.
“If you’re clever, you could even keep the name ‘triple lock’ while ensuring it doesn’t push the pension up faster than earnings over time. That’s the sort of carrot-and-stick package that might actually work.”
“By the end of this decade we’ll be spending £23 billion more each year on the state pension than if we’d stuck with inflation-linking,” he added.
“That’s about half the size of the so-called fiscal hole facing Rachel Reeves.” All the politicians know this — the OBR tells them constantly — but turkeys don’t vote for Christmas.
“In most constituencies a majority of voters are at or approaching retirement age. Unless you can sell a broader vision, people will resist anything that takes away their benefits.”
Labour have committed to maintaining the triple lock throughout this Parliament. Work and Pensions Secretary Liz Kendall said: Our ironclad commitment to the Triple Lock gives pensioners across the country the certainty and security they need to live a full life in retirement.
Torsten Bell, Pensions Minister, said: “Raising the state pension and rescuing the NHS – these are this government’s priorities to give all pensioners the dignity they deserve in their retirement. Those who have worked hard throughout their lives, paying into the system, are owed nothing less.
“We’re improving the lives of millions of pensioners through our £7.84billion additional funding for the state pension this year. That means up to £470 extra in pensioners’ pockets from this week and comes alongside our work to boost Pension Credit uptake.