Several professionals from the financial sector have raised concerns over the cost of the UK’s triple lock pension, saying that people of working age are paying the price in increased taxes. The triple lock policy is a commitment from the British Government that the state pension will go up each year in line with either inflation, wage increases or 2.5%, whichever of them turns out to be the highest.
One expert has warned MPs that the country can’t continue to afford this cost. Tom Clougherty, the executive director of the Institute of Economic Affairs (IEA), shared his concerns in a chat with GB News. “We can’t keep pretending we can afford everything we’ve promised,” he said. He also warned workers in the UK “face huge tax rises in the future” if the triple lock remains in place. The triple lock pension was first introduced by the Conservative-Liberal Democrat coalition Government in 2010.
The state pension now costs the UK taxpayer around £10 billion more than initially forecast. “The triple lock was meant to be a small political flourish,” the analyst said. “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.”
He added: “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.”
“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,” he continued. “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.”
He suggested the Government consider “subtle reform”, such as rolling smaller pensioner benefits into the state pension, giving pensioners a boost while giving space to “adjust the uprating formula”.