Calls for fairer system

Scrap pension triple lock to help the young, say MPs

pension pot 2The state pension triple-lock should be replaced with a system that it fairer to the younger generation, says a committee of MPs.

The triple lock guarantees that pensions rise by the same as average earnings, the consumer prices index or 2.5%, whichever is the highest.

The government said it was committed to the triple-lock until at least 2020. Under the policy, the state pension has risen by £1,100 since 2010, with an increase of 2.9% in April this year.

But the Commons Work and Pensions Committee says 1950s baby boomers benefit against so-called millennials.

It demands that all parties  seek “political consensus on a new earnings link for the state pension” before the next general election.

The committee says retaining the triple-lock would lead to state pension expenditure accounting for an ever greater share of national income: unfair and unsustainable, and more so in times of fragile public finances and economic uncertainty.

Accelerated increases in the state pension age, an alternative means of making the state pension more fiscally sustainable, would disproportionately affect the young and those socio-economic groups  – already worse off – with lower life expectancies in retirement.

A spokesperson for the Department of Work and Pensions said: “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.”

However the MPs said the rising cost of the state pension – £98 billion in the last tax year – is an unsustainable burden on the public finances. Their report states:

  • The millennial generation, born between 1981 and 2000, faces being the first in modern times to be financially worse off than its predecessors.
  • As the taxes of working people support record numbers of the retired, the ageing population places strain on those in work.
  • After housing costs average pensioner household incomes now exceed those of working-age
  • Improvements in retirement incomes have not been matched elsewhere: children are now twice as likely as pensioners to be living in poverty
  • Many young people are priced out of homeownership – and do not have access to generous occupational pensions – and are therefore locked out of building wealth

The Committee says pensioners have been protected from the public spending cuts that have largely been felt by younger groups, and that universal benefits like the Winter Fuel Payment should “not be off limits” when Governments seek savings. 

Universal pensioner benefits have been deployed by successive governments for reasons of short term expediency. Such measures, which are not usually indexed, lead to ill-targeted support, further complicate the benefits system and are politically and administratively far harder to put right than to introduce in the first place.

Triple lock replacement proposal

The Committee proposes a smoothed earnings link for the state pension. The new state pension would have a benchmark proportion of average earnings below which it could not fall. By 2020, the level of the NSP will be close to historic highs for the headline rate and above the means-tested minimum. It is a solid foundation for personal saving.

If inflation exceeded earnings growth, the purchasing power of the state pension would be protected by price indexation. This price indexation would continue once earnings growth again exceeds inflation until the state pension is again at the benchmark level.

This is fiscally sustainable (unlike a simple double lock, which would mean the value of the state pension continuing to grow relative to the rewards of work, especially during times of economic difficulty) but fulfils the objectives of supporting pensioners who would share in the proceeds of growth and get protection against high inflation.

Frank FieldFrank Field MP, (right)  chairman of the committee, said: “The welfare state is underpinned by an implicit intergenerational contract. Each generation is supported in retirement by their in-work successors.

“This is supported by all age groups, but a combination of factors has sent the balance out of kilter. It is now the working young and their children who face the daunting challenge of getting on in an economy skewed against them.

“Home ownership, taken as a given by many in my generation, is out of reach for too many aspiring young people today. At the same time as tightening their belts, they are being asked to support a group that has fared relatively well in recent years.

“Millennials face being the first generation to be poorer than their forebears. No party has been immune from chasing the pensioner vote –but at what cost to future generations? Politicians of all stripes must accept some responsibility for these trends, and we must act together now to address them.

“Great strides have been made against the scourge of pensioner poverty and the new state pension is at a level to provide an effective minimum income and encourage personal saving.

“It is time for the triple lock to be shelved. The system we propose protects pensioners and allows them to share the proceeds of future good times, but at the same time is inter-generationally fair. We call on all parties to get behind it.”

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