The triple lock was introduced in 2010 by David Cameron’s Coalition Government when Steve Webb (Lib Dem) was Minister of Pensions, to restore the erosion which had taken place since the earnings link was replaced with a prices’ link in the 1980s. To replace the triple lock with a prices’ link or 2.5%, as was proposed today, will reverse the progress of the last sixteen years. Clearly it has been proposed to save money, as it was in the 1980s, which means a reducing state pension at the very time Government should have been looking to increase it to reduce demand upon the NHS and social care. It is not just about paying for social care.
Prices are about the cost of living. Earnings are about the standard of living and quality of life. As the economy grows so too do the expectations and necessities of life. For example in the 1950s very few people had a fridge: it would be difficult to live without one today. In the ten years before the introduction of the triple lock in 2010 earnings went up by 41.7%, pensions linked to RPI by 32.4% and those linked to CPI (as now proposed) by 26.6%.
There is a wealth of empirical evidence into the social determinants of health which has demonstrated the correlation between low income and health. Widening income inequality and increasing poverty are the root cause of so many of the problems the Prime Minister was addressing in his speech to the Labour Party Conference.
In 1980 the average house was 3.5 times average earnings and the average pay of a chief executive of a top hundred company 18 times average earnings. In 2026 the average house is 8.5 times average earnings and the average pay of a chief executive of a top hundred company 186 times average earnings. Unless Government addresses the widening income inequality and increasing poverty in our society the NHS will not keep pace with demand and will always be playing catch up. Governments cannot go on throwing more money at the first aid camp at the bottom of the cliff without building a fence at the top. Treating the symptoms not the cause.
Britain has one of the lowest State Pensions in the developed world with 2.4m older people living in poverty. Older people got no benefit from the two pre-2024 General Election cuts in National Insurance, previously lost their free television licence and some their winter fuel allowance and have to pay more income tax due to the freezing of the tax-free allowance. And are now to see a year-on-year erosion of their pension.
Older people account for approximately 70% of the expenditure of the NHS. To raise the State Pension to lift all older people out of poverty would improve their quality of life, reduce demand upon the NHS (saving huge amounts of money) and mean that if they did need long term care in a care home applying the same financial assessment which has been in place since the 1948 National Assistance Act they would be able to contribute more reducing the cost to local authorities and mean that their capital and house would no longer need to be taken into account.
The NHS and social care need radical reform, restructuring and cultural change based upon a whole systems approach to liberate the hardworking professionals from the constraining contract culture into an enabling leadership one. Taking out functional divisions along patient / user pathways to create “whole task, right sized, multidisciplinary, inter-agency teams”, able to “plan do and evaluate* their own work which completes the learning cycle of constant improvement.
A survey by The Times found there were on average 13,600 people a day in hospital awaiting social care. To enter a care home is one of the few irreversible decisions in life and is not to be taken lightly or without an assessment of need and verification of wishes. And there are many more older people not receiving the help they need in the community.
Social care needs to move from a “minding” to a “mending” service. Social Work is under-valued and social workers misused.
Past deliberations have focussed on paying for social care. If the emphasis were to shift to where best to intervene and put the money Government may find they do not need as much as they thought.
This is covered in much greater depth and costed in my book.
Click the picture below for an over view and executive summary.
* Chris Perry is a former Director of Social Services for South Glamorgan County Council, a former Director of Age Concern Hampshire, a former Non-Executive Director of the Winchester and Eastleigh Healthcare NHS Trust and a former presenter of an award-winning public affairs programme on Express FM.
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27 Comments
“ Prices are about the cost of living. Earnings are about the standard of living and quality of life”
Standard of living rises when earnings rise faster than prices and falls when earnings rise more slowly than the rate that prices are rising. Breaking the triple lock by removing the earnings link will not lead to a reduction in anyone’s current Standard of Living though it will mean than pensioner’s Standard of Living will not increase as much as it would if the link were maintained. Guaranteeing that pensions will always rise by at least inflation will protect the spending power of pensions into the future and if inflation ever falls to below 2.5%, pensioners would see an increase in their Standard of Living since pensions will then rise more quickly than the rate of price increases.
Jana@ The Government plans to fund its National Care Service out of the savings from discontinuing the earnings element of the triple lock so how can a prices link or 2.5% possible mean it will continue to go up in line with earnings? Margaret Thatcher replaced the earnings link with a prices link to save money and now Andy Burnham has done the same. If the state pension had not been eroded as result of the prices link there would have been no need for the triple lock. However, the main thrust of my article is that given the wealth of empirical evidence into the social determinants of health which has demonstrated the correlation between low income and poor health to increase the state pension to lift all older people out of poverty would reduce demand upon the NHS and social care and make Andy’s National Care Service more affordable.
It appears to me that Chris Perry has paid no attention to the details of the PM’s announcement.
Under the PM’s proposals, pensions will not fall behind the long-term growth of average earnings.
The effect of the current form of the triple lock is that there is a ratchet effect that locks in years where earnings fall below inflation or 2.5%, with the effect that in the long run pensions end up rising faster than average earnings.
Thanks to Mr Perry for those useful and comprehensive statistics. As I have already argued on a previous post, the triple lock should remain in place until our basic pension reaches the same level as those of similar large European Countries. At the moment the UK’s is equivalent to about €13 000 per year. Those of France, Germany, Spain and Italy range between €17 000 and €19 000. We needn’t aim to be be world leading: just average.
Mr Perry’s links of a decent pension to the health of pensioners and costs to the NHS are very pertinent. I’m sorry he markets his book via Amazon, who don’t pay their fair share of taxes and treat their workers abominably. I believe all Liberals should boycott them.
I think we can all, including Andy Burnham, agree that the earnings link to pensions has been dropped to save money. The question is how much money will it save? Downing Street has said the planned change will save £15bn a year by the end of the 2030s. That’s 13 years away! Will this be anywhere near enough to fund the proposed National Care Service?
I doubt if the savings will even get close to it. The NHS reportedly costs £240 bn per year. The NCS, in any form that is worth the name, will probably cost around 10% of that so we’re talking about £24 bn. Even if the Downing St figure is right it will still be well short and the cost of the NCS will be even more at the end of the 2030s
So the cynic in me thinks that we’ll end up scrapping the earnings link to supposedly fund a NCS but we won’t actually get a NCS!
The point about the tripple lock is that the rate at which it ratchets up pensions is unpredictable. In the normal course of events, you would expect them to rise in line with earnings. They only rise relative to earnings if we get the sort of shock that makes them harder to afford anyway. It could be a sudden fall in earnings (start of Covid) or a sudden burst of inflation (outbreak of Ukraine war) or a long bout of deflation (RPI and earnings both flatlining). Burnham is removing the most obviously valid lock.
The flip side of its unpredictability is that we have no idea how much abolishing it will save.
As Mohammed Amin point out, this is just a proposal from the PM. They won’t do anything until after the next election. Given OAPs will soon represent 50% of the country, the triple lock could bankrupt us. It’s part of wedge between those under 30 and those over 60, and I do not lie that wedge. People over 60 got a free university education, good prospects for a job, and could buy a property at 3x earnings. All impossible now.
@Paul Barbour as of 2024 less than 18% of the population was over 65. What is your definition of soon?
Governments have repeatedly tried and failed to solve the problem of unpredictable but potentially very high late-life social care costs. Burnham has come up with a clever idea that might help. He is telling pensioners that as it is they who would gain from a National Care Service, it is they who should sacrifice some pension payments in order to help pay for it. That should help defuse resentment from younger people, and also make it harder for the Right to scupper the idea with noxious phrases like “death tax”.
It’s true that the pension savings won’t cover all the NCS costs, and it’s always possible for pensioners to make a case for higher pensions. But if we want an NCS, we should, like Burnham, make that the priority.
Chris Berry seems to have either misunderstood or not properly listened to what Andy Burnham said.
He said the State Pension “will hold its value relative to earnings over time”.
The new policy will remove the “ratchet” effect. This happens when events cause a sharp rise in inflation, for example after Russia invaded Ukraine. That sharp rise triggers a sharp rise in the State Pension to match inflation but there is not a sharp rise in earnings. The following year earnings increase rapidly to catch up while inflation declined. The Triple Lock leads to another large increase in the State Pension. This causing pensions to run ahead of earnings over time. The new policy removes that effect.
If he is concerned about pensioner poverty he should be pushing the government to do more to improve the take up and generosity of Pension Credit.
Surely if this ratchet effect helps us o get up to the European average for pensions more quickly, that’s all to the good.
I’m confused by this article and some of the comments..
If, as has been stated, our pension should increase by up to £6,000 to the current level of Europe just how will it be paid for? The ‘magic ‘growth fairy’, by cutting other benefits, by tax increases, perhaps?.
This £6,000 also assumes that the European average remains static instead of rising in line with their rules..
We, unfortunately, live in a real world not chasing a dream that we all know won’t happen.. “The perfect should not be the enemy of the good”
‘ increase it to reduce demand upon the NHS and social care. ‘
Please show me the evidence. A boadbrush statement that poverty is linked to poor health is not enough. I agree that pensions are too low and a lot of people are struggling. I don’t think it is right to put pesnioners at unfari advantage when they are no longer poorer than everyone else. I am embarrased by the triple lock. Has anyone mentioned UBI?
@Peter Wrigley Totally agree with your comments on employment practices and pay differentials which is central to my campaign. This is very much about awareness raising and campaigning to bring about change. Any commission I get is spent on sending out free copies. Amazon was the only platform available to me.
@Paul Barbour
“ Given OAPs will soon represent 50% of the country,..”
To be clear, the state retirement pension age rises to 67 in 2028 and, at the time, will account for just under 20% of the population. I don’t know when (if ever) it is predicted that 50% of the UK population will be 67 or above.
@Meg Thomas There is a wealth of empirical evidence. Could I suggest you read by book.
“Has anyone mentioned UBI?” surprisingly not yet on this article. Both Mick who points out that the pension is not high and those who point out the massive wealth gap between generations are right. Many now pay off their mortgage, inherit their parents’ house and get a private pension at about the same time. All those things are preferentially treated and any attempt to change this is framed as an attack on poor pensioners.
We need more redistribution within the older generation and UBI should be part of that.
@Peter Davies
“ Many now pay off their mortgage, inherit their parents’ house and get a private pension at about the same time. All those things are preferentially treated and any attempt to change this is framed as an attack on poor pensioners.”
Can I ask how you believe getting a mortgage and then paying it off ‘preferentially treated’? I do know that Mortgage Tax relief once existed but that ended completely 26 years ago, so I’m not sure what you’re getting at.
In any case, these things are a side issue in a discussion around what the value of the State Retirement Pension should be for those who have paid National Insurance Contributions (or been credited with them) throughout their working lives.
Dear Chris, as others have pointed out, you seem to have missed the fundamental detail of the PM’s proposal as it retains a link to earnings, but instead of an annual wage growth lock (which causes upwards, unpredictable ratcheting effects when combined with inflation) it will track longer term wage growth so that the state pension retains its value relative to wages. This reform will not “reverse the progress of the last 16 years” as it is mathematically impossible! The proposal cannot erode the state pensions value relative to inflation or wages.
As a young person, I take issue with the idea that older people were hard done by pre-2024 as they didn’t get a NI cut. It has never made sense (or seemed fair) that pensioners incomes are taxed at a lower rate than workers (due to no national insurance) – even if their earnings were nominally the same!
Increasing in the state pension – a benefit claimed by 13.2 million people today (10.8 million of whom are not in poverty) – is bad way to tackle pensioner poverty and you’d be better increasing pension credit to directly and more quickly help those who actually need it.
Chris, you also neglected to mention that the link to ‘earnings’ has already been ‘deemed unaffordable’..
Almost exactly 5 years ago (Sept 2021)The Tory government imposed a one-year suspension of the “triple lock” formula for annual state pension increases.
The move followed government concern that a big post-pandemic rise in average earnings would have meant pensions increasing by 8%.
Work and Pensions Secretary Therese Coffey said the average earnings component would be disregarded in the 2022-23 financial year.
Instead, the rise was the consumer inflation rate or 2.5%.
There seems to a fundamental misunderstanding from the author and a few of the comments on the nature of the UK state pension. The UK state pension is designed to be supplementary, with private pensions (mainly) and other sources of wealth doing the heavy lifting. That’s why we have auto-enrolment for example. For those who don’t have private provision, there is a safety net of benefits.
France, Germany etc have state pensions designed as the main source of retirement income, with private provision that are a fraction of the UK’s. That’s why their tax rates are higher. We’ve just allocated those deductions to our private pension contributions instead.
If you want the UK state pension to match those other nations, we need to increase to basic rate to maybe 30% and abolish auto-enrolment.
On poverty, eliminating relative poverty (the UK benchmark) is practically impossible. There will always be those on a lot less than the median. And I’m not sure absolute poverty (which actually measures suffering) is that common amongst pensioners?
And again on relative poverty, pensioners come out quite well on this measure. It’s working-age adults and children who have it worst.
@James Hill Whether you like it or not Andy Burnham proposes removing the earnings link from the triple lock to save money. Just as Margaret Thatcher did when she replaced the earnings link with a prices link. The triple lock was introduced to reverse the erosion which had taken place since then.
@Chris Perry I’m sorry Chris but you are wrong. Here is a direct quote from the PM’s speech:
“The state pension will continue to rise every year at least by prices or 2.5%.
And it will hold its value relative to earnings over time so that pensioners will always share in the rising prosperity of the nation.”
That second point is what you are continually missing, there will still be a link to long term wage growth (but not an annual lock). This is what has been proposed by the resolution foundation, and our own peer Tim Leunig, before to remove the ratcheting effects of the triple lock and make its rises more predictable and sustainable. The IFS has a good explainer of how this will work relative to the old triple lock too if you would like to seek further explanation.
https://ifs.org.uk/articles/how-will-new-triple-lock-work-and-what-effects-will-it-have
Hope you have a good weekend
@James Hill. What Andy Burnham actually said was that if a prices link or 2.5% did not keep up with earnings over time (which is unlikely) the Government would increase the pension to correct it. But this would be at the discretion of the then Government.
If the Government really wants the state pension to keep pace with earnings then the answer would be to keep the earnings link and remove the prices link and the 2.5%. Then at least the government would have rectified the mistake made by Margaret Thatcher when she replaced the earnings link with a prices link. The erosion in the state pension this caused is what made the triple lock necessary. So why repeat the mistake?
However, the state pension is still far too low and to increase it would reduce demand upon the NHS and social care making Andy Burnham’s National Care Service more affordable. This was the main thrust of my post.
What the Prime Minister actually said was that if a prices link or 2.5% did not keep up with earnings over time the government would correct it. But that would be dependent upon the good will of the government of the day. If the Government really wants the pension to go up in line with earnings then the answer would be to keep the earnings link and remove the prices link and the 2.5%.
However, the state pension is still far too low. The main thrust of my post was to increase it would reduce demand on both the NHS and social care and make the National Care Service more affordable.
Chris Perry………What the Prime Minister actually said was that if a prices link or 2.5% did not keep up with earnings over time the government would correct it. But that would be dependent upon the good will of the government of the day.
Almost exactly 5 years ago (Sept 2021)The Tory government imposed a one-year suspension of the “triple lock” formula for annual state pension increases.
Work and Pensions Secretary Therese Coffey said the average earnings component would be disregarded in the 2022-23 financial year. Instead, the rise was the consumer inflation rate or 2.5%.
So, Under the existing system, the ‘Triple lock’ was “dependent upon the good will of the government of the day.”
What has changed?
@Jana “Can I ask how you believe getting a mortgage and then paying it off ‘preferentially treated’? I do know that Mortgage Tax relief once existed but that ended completely 26 years ago, so I’m not sure what you’re getting at.” Capital Gains Tax exemption means that many people will, at the point of paying off their mortgage have an asset worth considerably more than they paid for it and will not have paid any tax as they would if they had invested in most other assets.