Labour has been urged to scrap the triple lock and promise never to mean-test pension payments to generate an extra £11 billion a year. The Institute for Fiscal Studies (IFS) said the move would make future pensioners more financially secure and address issues with the current system. Its Pension Review, in conjunction with the Financial Fairness Trust, included reforms to help vulnerable groups and enhance private savings schemes.
It also included a guaranteed state pension framework and provided practical solutions for people to manage their pensions during retirement. While the state pension is not currently means-tested, the IFS called for support to be improved for those approaching retirement age.
It called for ministers to establish a specific benchmark for a new state pension, relative to typical wages.
Annual increases would then match average wage growth as opposed to the current triple lock scheme, which increases pensions by either the rate of inflation, average wage growth, or 2.5% – whichever is highest.
Pension payments would never fall below inflation, as temporary adjustments would be allowed when prices rise faster than earnings. The state pension age would also only increase if life expectancy improves.
Under the proposed scheme, every employee between 16 and 74 would get mandatory contributions from their employer, valued at 3% of their salary, regardless of whether they contribute themselves.
The IFS said this would increase default contribution rates under automatic enrolment and protect the take-home pay for people earning less. Self-employed people would make pension contributions via their tax self-assessment.
This would generate an extra £11 billion every year in private pension savings, the IFS said, made up of £5 billion from employers and £6 billion from employees.
Paul Johnson, former director of IFS and co-Director of the Pensions Review, said: “There is much to celebrate about the current UK pensions system. The current generation of retirees is, on average, doing much better than any previous generation.
“Pensioner poverty is way down on the very high levels in the 1970s and 1980s, and is indeed below that for other demographic groups. The state pension has been simplified and is now much more generous to many women than in the past.
“But there is a risk that policymakers have become complacent when it comes to pensions. Without decisive action, too many of today’s working-age population face lower living standards and greater financial insecurity through their retirement.
“Our recommendations give government a clear and affordable roadmap: shore up the state pension, help workers save more – but only in periods when they are better placed to do so – and help individuals to make the most of their pension pots through retirement.”
