In his conference speech this week, Andy Burnham made a brave political decision to reform the triple lock on the state pension. The reformed triple lock will increase the state pension by either inflation or 2.5% every year. If there is sustained growth in average wages over several years – enough to outpace the inflation and 2.5% locks – then the pension will rise to match that wage growth.
This ensures that every year the state pension will be protected, or increase, in real terms, and it retains its value relative to wages. This is a sensible reform; similar proposals have been put forward by the resolution foundation, and our own peer Tim Leunig, and there is widespread agreement from economists that the unreformed triple lock is financially unsustainable. Under the current triple lock, the state pension can grow faster than both wages and inflation, due to a ratcheting effect where correlated higher inflation and larger wage increases lag each other and lead to compounded state pension increases. And remember, every time the state pension bill increases, this money must come be found from increased taxes, spending cuts or (currently dismal) growth. The triple lock reform removes this ratchet by tracking average wage growth over many years, instead of an annual wage growth lock, saving an estimated £15 billion/year by 2039/40 (though this is hard to predict). This is a large sum of money in the medium and long term and will significantly ease the huge spending pressure the country is facing.
So it was disappointing to see an immediate condemnation of this policy from the party leadership – seemingly without considering the details or merits of what has been proposed. They seem to have jumped into opposition because of a (misguided) belief that the most politically popular option is to oppose any change to the triple lock, now and forever more. The polling around this announcement shows how wrong this assessment is (Lib Dem voters are the most supportive of the reform)!
Our deputy leader Daisy did an interview with Sky News setting out the party’s 3 main problems with the plan, 24 hours after the PM’s speech:
1) The reform doesn’t raise any money in the short term for urgent social care needs
2) It seems like cross party talks have been torpedoed
3) Triple lock “hasn’t done its job yet” in tackling pensioner poverty
Now points 1) & 2) are completely correct, and we should be pushing the government on their failure to fix immediate social care issues by kicking everything until after the next election. However, what 1) doesn’t acknowledge is that the triple lock reform does save a significant amount of money in the long term as set out above.
But point 3) is revealing. It implies that the triple lock is the tool through which we should continue to tackle pensioner poverty. However, this is wrong. The triple lock is a crude, expensive and badly targeted way to help poorer pensioners because increases in the state pension are paid to all pensioners – the vast majority of whom are not in poverty – and further harms intergenerational fairness through a transfer of wealth from the taxes of younger workers to increase payments to the wealthiest generation in this country. The poverty rate among pensioners today is lower than for working age adults and children. If we really want to help poorer pensioners, it would be much better, and more cost-effective, to give support directly to them, for example through increased pension credit.
Furthermore, point 3) begs an obvious question: at what level of state pension will it be “job done”? When will we get there (the triple lock increases are unpredictable)? How much will that cost? Why not just raise the state pension to that level now (and explain where the enormous additional tax burden will come from)?
Instead, the triple lock should not be seen as a tool to (massively) increase the state pension, but as a way to protect its value relative to inflation and wages – something Andy Burnham’s proposal achieves. Keeping the current triple lock, and allowing the state pension bill to rise faster than inflation, wages and the tax base that pays for it, is simply unsustainable.
We should embrace this moderate, sensible reform, for the good of our country’s finances, and turn our focus onto holding the government to account on the immediate social care crisis, making sure their warm words about Europe turn into a real plan for fixing our broken relationship and ensuring we get the fair voting system the country deserves.
* James Hill is a Lib Dem member (for 7 years) in Oxford East
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8 Comments
I agee with your main argument. We do not need to support many pensioners with the triple lock and those who are poor should be provided for in another way. I supported it at first because it was a simple way of dealing with an urgent situation due to the Labour government letting the state pension fall in value. The generational argument is also relevant and that needs changes to the welfare system so that young people not in employment or good enough jobs get more help with education and training/work experience together with incentives to employers (especially now that they pay more national insurance). It is surely part of our approach that government finances are well managed while giving more help to those on low incomes or low quality of life and also taxing the rich rather more. Surely we can be better than others in being nuanced in our approach and not fall into the simplistic yes or no to any current policy.
Paying for Social Care on the backs of the poorest pensioners is just not on. Billionaire press owners have pushed the (incorrect) idea that pensioners are being given special treatment to keep their own taxes down. They have got young people on side by claiming (Falsely) that there is some kind of equivalence between pensions and benefits paid to young people. Comparing pensions, which pensioners have paid for all their working lives, with welfare payments for NEETS who have not yet started paying towards pensions is laughable and it’s not on.
UK old age pensions are pants, much lower than most European countries. The triple lock has improved them. People who took their pension before 2016 have to survive on £12500 a year or £250 per week. Those retiring after 2016 have some a little more.
There are other pension problems. The Tories virtually abolished decent company pensions. Outside the public sector people wishing to provide pensions for themselves are at the mercy of the market. Workplace pensions are hardly a substitute.
Instead of attacking the triple lock, we should ask how both pensions and benefits can be paid for at levels that people can live on and telling the electorate the truth that for decent pensions and fair benefits, we will all have to pay more. That means real tax increases, not fantasy economics about the growth that might or might not happen, if and it’s a big if, we ever join the EU or some of its parts
@ Mick,
“People who took their pension before 2016 have to survive on £12500 a year or £250 per week.”
To be correct you should be saying “some people”. I would say most don’t. They’ll have some additional income in the form of a private pension or maybe even a job. FWIW I have both.
Increased taxation, in the form of VAT and income tax etc, isn’t the only option to fund a NCS. The present system does penalise some elderly people with the loss of their homes to fund their care in their later years whereas some don’t. They’ve hopefully peacefully pass away at home when their time comes without incurring expensive costs.
I think we’d all agree that there is an inbuilt unfairness in all this. So how about coming up with something fairer based on everyone losing some, but not all, of their assets when they do pass away?
I know this will be attacked as a death tax! I’ve never fully understood this argument. I’d much rather pay taxes after I’m dead than while I’m still alive.
I agree with James Hill.
I found our Party Leadership’s reaction disappointing, and am pleased that some MPs have already pushed back. I think Ed Davey has just got this issue wrong, and needs to acknowledge that.
In my view, Andy Burnham’s change to the triple lock is the right thing to do. That is why the Institute for Fiscal Studies has commended it.
@PM
LDV word limits do not always make it possible to say everything one might like!
Yes, some people, myself included, have been able to make other provision and do not rely solely on the old age pension. The point is that stopping the triple lock, before anything like a decent old age pension is being paid, hits hardest at those who do rely on the state pension.
Well said, Mick.
@ Mick,
We agree that the triple lock should be maintained . We disagree that the burden should fall mainly on the younger generation. This is what your ” we will all have to pay more. That means real tax increases” means.
It’s the younger generation that will have mainly to pay those extra taxes. I can see how this will play out in my own family. My own son earns more than I do, and so pays more in taxation, but he’s definitively worse off than me. This is mainly because he’s having to pay £1500 or so per month on his mortgage which will soon jump up to over £2000 pm. To earn that £2k per month means he has to earn £3k + per month (gross) which is about £40k per year. Switching to a rental home probably wouldn’t be any cheaper. Plus he has all the additional expenses of looking after a family.
On the other hand my wife and I don’t have a mortgage. Our house is paid for.
For those in favour of the status quo.. How will the increasing spending on the triple lock be paid for in the long term?
The two parties most vociferous in it’s defence ( Tory/Reform) have both promised ‘savings’ (cuts), mostly in welfare spending, of around £50billion; in fact Andrew Griffith has been in the news for discussing even deeper welfare spending cuts.
Earlier this year the University of Oxford study said the austerity-era growth in children exposed to poverty for most of their formative years was a “significant social problem” that would cause long-term harms to their health, education and life chances..
It found that more than n a fifth of all “austerity generation” British children have been scarred by the poverty for at least half their childhood, a direct legacy of the welfare benefit cuts imposed by Conservative governments which drastically shrank annual welfare spending by tens of billions a year and took thousands of pounds a year out of low-income family budgets, effectively pitching hundreds of thousands more children into sustained poverty..
Pensioners were largely protected from those years of austerity and a typical pensioner household now has the same level of income as the typical working-age household and pensioners are now less likely to be in poverty than the rest of the population, and half as likely as children.
There has to be a better way of protecting those pensioners in poverty than the broad brush ‘Triple Lock’..