The triple lock gets a lot of bad press. It’s been cast as the main villain in State Pension cost rises, by being a supposedly unsustainable ratchet, cranking up the pension bill year after year. But while the triple lock has become more expensive than expected, it’s not the only, or even the biggest, driver of rising costs. Rises are far more rooted in demographics than in any one policy choice.
State Pension spending has increased steadily since the mid-20th century, rising from around 2% of GDP, to roughly 5% today (£138 billion). OBR projections suggest that the State Pension will cost 7.7% of GDP by the early 2070s. That’s a big increase, and many assume that the triple lock is to blame. But, actually more than half of the projected increase, 1.6 percentage points out of 2.7, is down to demographic change; more pensioners, fewer working-age adults, and longer lives.
Right now, there are about 2.9 working-age adults per pensioner, down from 3.4 in the 1970s, and it’s expected to dip further to 2.7 over the coming decades. If life expectancy keeps rising as it is projected to, from 21 to 26 years post-age 65, then people will be drawing pensions for longer, too. In a high-life expectancy scenario (29 years post- age 65), pension costs could be another 0.7% of GDP higher still. That’s not about the triple lock, it’s biology and birth rates.
We’re also living through the retirement of the baby boom generation. There’s a “hump” effect in the pipeline; costs will rise as this large cohort moves through retirement, but that won’t last forever. Eventually, the ratio of workers to pensioners will stabilise. The real question is: what kind of State Pension do we want after the hump? How much should it be worth in the long term?
I’m not saying the triple lock is irrelevant. It has pushed up costs, partly because inflation has been far more volatile than anyone expected. When it was introduced in 2012, the triple lock was expected to increase pensions by just 0.2 percentage points above earnings on average. Instead, we’ve seen the non-earnings elements triggered eight times in 13 years. That means it’s on track to cost three times more than first forecast – £15.5 billion a year by 2029-30, instead of the £5.2 billion originally expected.
But even if we scrapped the triple lock tomorrow, we’d still have a demographic issue. Changing the uprating formula doesn’t solve the underlying issue, it just shifts the burden onto pensioners. And let’s remember that the State Pension is very low by international standards; our replacement rate is among the lowest in the OECD.
So – and I have said this before – before we eliminate the triple lock, we need to ask what we’re aiming for. What should the State Pension be worth? How do we protect older people while maintaining sustainability? We urgently need a long-term target for the value of the State Pension. Without one, we’re just guessing, and risking real harm to those reliant on the State for a sustainable income.
Let’s stop blaming the triple lock for a demographic shift that has been decades in the making. And let’s make sure we have a clear destination in mind before we start tearing up the route map.
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