Opinion: Why it is wrong to enshrine the “triple lock” in law

pensionsOne of the now regular flow of “policy announcements” from the leadership calls for the 2010 ‘triple lock’ to be enshrined in law.  Passing for a moment over the fact that these “announcements” are of course nothing of the sort and discourteous to Conference which passes policy, (though, to be fair, as Mark Pack and others have pointed out, Steve Webb has been careful to avoid language some others have used that suggests these policies have been agreed without the party having a say), I think it’s the wrong idea.

Why? Because, simply put, we can’t afford it.

It is widely understood that there are significant long term demographic pressures that present real challenges to the public finances. Not only are we living longer, we are mostly expecting our working lives to remain of roughly the same duration. This is a hugely positive thing: only a tiny proportion of over-65s actually see themselves as ‘old’ and that reflects a new stage of life: active retirement.

Liberal Democrat reforms to the pensions industry will deliver an enormous improvement to future generations in retirement. We know, however, that as the balance shifts to the point where the number of people in retirement exceeds to numbers in work, there will be huge challenges to political leaders to adapt.

Some approaches are changing. I have long argued for the totally unnecessary giveaways currently on offer to pensioners who don’t need them [free TV licences and Winter Fuel Payment] to be scrapped. Whichever way you cut this, though, it only raises a relatively small amount of money, at some political cost.

However, the state of the public finances and Tory influence in government, combined with an embarrassing lack of Liberal Democrat policies to back up our values and help Ministers repel the Tory desire to kick the poor, has meant savage cuts to support for the most vulnerable people of working age.  People with disabilities in particular – some 6.9 million – justifiably feel anger when wealthy older people get help at their expense. With politicians eager to justify the ringfencing of parts of the budget or talk about tax cuts when billions still need to be found to clear the structural deficit, there is some justification in the fear that the most vulnerable will suffer still further in future.

In reality, whereas a little under a billion pounds is spent on these perks for the wealthiest pensioners, the inflationary aspect of the triple lock while hard to quantify exactly is an *additional* billion pounds, every year. So on current Government spending figures, that would mean the state pension costs an extra percentage point of the public purse every few years.

Augment that pressure with demographic change and you see how a commitment to enshrine the ‘triple lock’ in law is unsustainable in the longer term at best, and at worst one of those political promises made in the knowledge that at some stage, someone will have to renege on it. Some years ago at Conference, some readers may be surprised to hear, I was on the same side as David Laws making this case at a time when Labour had handed out disgracefully small increases to the pension and there was a clamour to restore the earnings link. I cannot see a policy platform of raising an extra billion pounds a year, every year, going down well within the Party or among the electorate. Yet that is what Conference is being asked to sign up to

The party’s policy working group on policies for an ageing population has done good work. I have been one of its less active members. I hope this debate will not overshadow the very many positive policies it contains.  However, we should be honest with ourselves and with the electorate, and not sign up to a pledge we know that in the long run we will not be able to keep.

* Gareth Epps is a member of FPC and FCC, a member of the Fair Deal for your Local campaign coalition committee and is an active member of Britain’s largest consumer campaign, CAMRA. He claims to be marginally better at Aunt Sally than David Cameron, whom he stood against in Witney in 2001.

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32 Comments

  • Andrew Emmerson 2nd Jul '14 - 10:57am

    Apart from it being expensive as you’ve noted, I largely think we’ve taken what credit we can from this anyway so it seems pointless to pursue an terminally expensive, give away in which we get little or no return.

  • This is the second time I’ve agreed with Gareth over something. It’s a very odd feeling…

  • David Evershed 2nd Jul '14 - 11:11am

    At the very least, the implications of this triple lock law should be debated. It is not a strightforward issue.

    Given the current unsustainable deficit, what sacrifices will have to be made elsewhere to pay for the generosity to pensioners?

    Like all political parties, Lib Dems should avoid making promises which can’t be kept in the full light of day.

  • Liberal Neil 2nd Jul '14 - 11:30am

    I think we have to be very careful not to lump all pensioners into one basket. The basic state pension is not particularly ‘generous’, in fact it is so low that if it’s all you’ve got to live on you have to claim benefits on top.

    And many thousands of pensioners live on that sort of income.

    Where I agree that there is an issue is that there are lots of pensioners who are a lot better off than that, and that giving away extra bits of cash through things like the winter fuel allowance, is unnecessary and expensive.

    So I personally have no problem with fixing a rise in the basic pension for the foreseeable future, but I’d also like to see other reforms in parallel so that it is the less well off pensioners who benefit, and not those who already do very well.

  • David Allen 2nd Jul '14 - 11:31am

    “not sign up to a pledge we know that in the long run we will not be able to keep.”

    Ouch, agreed!

  • It is not that expensive – the pension with the single tier pension and triple lock as a percentage of GDP is going down in the next few years and only goes up by about 1% of GDP. See https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/181229/single-tier-pension.pdf
    I think it right that pensioners should share in the increase in national wealth that they have contributed to through work, caring and raising families.
    Pension poverty is normally defined as a percentage of median earnings – if we don’t link it to earnings then pensioner poverty increases. And we get back to the problems with pension credit – a good idea in itself – raising the pension for those less well off. But millions didn’t claim it. And it is unfair to those that save etc. and get very little “extra” for their saving.

  • Well as a soon to be pensioner who will not be rich I have no problem with being taxed on the tiny bit over my personel allowance but in truth I am unsure when you want to write into law world aid 12 billion and rising is that a good use of our credit card. It shocks me that if you pay in you think that because many governments have not saved our contributions that we should be punished. Taxation is the answer surely as regardless of level of benefit with income tax and VAT we have little left

  • If our taxation policies are right, we won’t have to worry about what can be seen as universal benefits, and bind us all in, which is one of their key advantages. The problem arises when older people start objecting to taxation of large occupational pensions, or other benefits from capital gains etc.

  • Simon McGrath 2nd Jul '14 - 12:06pm

    I agree with Gareth, this surprises me as much as I am sure it will him.

  • @Michael 2nd Jul ’14 – 11:44am
    “It is not that expensive – the pension with the single tier pension and triple lock as a percentage of GDP is going down in the next few years and only goes up by about 1% of GDP.”

    I would be very careful interpreting the figures, with the state pension age increasing over the coming decade, we can expect to gain a “breathing space”, however once the age has stabilised at 70 things change (it’s a bit like companies changing from paying wages mid-month to end-of-the-month). Also the GDP forecasts contain many assumptions about the prospects for future growth and how that might be achieved.

    What we can be sure of is that the deficit in 2015 along with its servicing costs will be significantly larger than the “eye watering” level of 2010…

  • @tim13

    Spot on over rule the objections from those who think they are exempt from tax and in truth if NIS was at a sensible level or part of tax I fail to see why I or other pensioners should not pay as a contribution for NHS one we get deficit in hand then use the credit card for aid

  • Charles Rothwell 2nd Jul '14 - 12:16pm

    I am working my way through the John Cruddas/IPPR review of Labour policy (“The condition of Britain”) and am finding that very much if it could well have been written from a LD stance (as with Milliband’s speech yesterday talking about transferring billions in spending from Whitehall to local authorities (if this is really serious)). The review acknowledges that the governments of Blair and Brown were catastrophic in many ways (not least in being just as centralized in their increasingly micro-managerial and dirigiste approaches as Thatcher and Major before them). The report also states that the days of Big Government spending are over (and definitely for the period of the next government at least) while believing that free market solutions can solve deep-rooted social problems on their own is the recipe for creating nightmares out of dreams. The report says a much more localised view with a focus on “bricks not benefits” is needed and, to follow on the points made above about not lumping all pensioners together (as with the Winter Fuel Payment etc), in many areas the provision of targeted care facilities, day and community centres, catering facilities, the employment of specialist staff etc etc may well be much more productive in affording elderly people a much better quality of life rather than just throwing money around -as well as providing them with a degree of empowerment to express what they regard as their primary needs. As the Report emphasises, however, this will also of course need a radical revamping of local government provision and administration as just forking out money to deprived local authorities whose budgets have been radically slashed (and with many more cuts to come) will certainly not just solve the problems at one blow.

  • Tom Papworth 2nd Jul '14 - 12:21pm

    The OBR estimate that, if maintained, the Triple Lock will by 2062-63 be equivalent to a 4.7% annual increase of the state pension and add £150 billion to the cumulative cost of pensions. The Triple Lock will therefore result in pension spending being 0.9% of GDP higher in 2062-63 than if pensions were uprated only in line with earnings.

    http://budgetresponsibility.org.uk/pubs/2013-FSR_OBR_web.pdf

    The sooner we move to a contributory pension system the better.

  • @Charles Rothwell

    If by target you mean “means test” is that really a good thing more forms.

    @Tom Papworth

    From my point of view the state pension is was contributory is it mine or others fault the Government spend it on things like HS2 or wars I don’t think it is

  • @roland
    The percentage of GDP with single tier pension and triple lock is:
    Current: 6.4% (will be 2017 when single tier comes in)
    2020: 6.0%
    2030: 6.5%
    2040: 7.5%
    2050: 7.4%
    2060: 8.1%

    You are correct it goes down in the next few years. Due in particular to increase in state pension age, women’s pension age going up and equalising with men. And men could get pension credit at the same age as women – initially 60.

    Remember that by definition the increase in % of GDP is NOT the earnings related bit because earnings go up by GDP but that people are living longer. (The triple lock – earnings or inflation as to supposed to just earnings adds 0.2% after 2040)

    The point is that if pension is not uprated by earnings then I would have to save more during my lifetime to do that. The single tier higher pension and to my mind the triple lock is quid pro quo for NI effectively going up (you can’t now contract out of the state second pension which is being abolished). Remember the state second pension – initially SERPS State EARNINGS related pension was earnings related and is now being abolished.

    I think as far as you can – it is worth Government saying what the case will be in 30-40 years as I have to make decisions about whether I save for a pension or not on what I will get in 30-40 years time. For a large number of people it wasn’t actually worth saving etc. or worth very little indeed because the difference between that and pension credit was very small.

    A high(er) basic state pension uprated by earnings:
    1. Abolishes pension poverty
    2. Makes the financial sacrifice of saving oneself for a pension worthwhile.
    3. Means that I and you don’t have to save extra for the earnings related bit during my lifetime
    4. Means that pensioners share in the increase wealth of the country which they have contributed to
    5. Legislated for the triple lock gives people certainty about decisions they have to make in the 30s and 40s
    6. Politically the correct thing – if inflation was 0%, very low or indeed negative would we support a low rise – the 75p rise under Labour was very damaging to them.

    (Although I am not sure that one parliament can bind another – and it could be repealed even if it was law)

  • Stephen Howse 2nd Jul '14 - 1:01pm

    I agree with you, Gareth.

    We have auto-enrollment into workplace pensions now anyway. I support a flat-rate state pension but don’t think, with the proportion of pensioners set to rise and rise, that it’s prudent to enshrine in law that the rate will keep going up in perpetuity.

  • @Gareth Epps

    HS2 would it be pushing you to far then for HS3 first

    Or

    Hs2 but start at the northern end, I could agree with either of those

    I am in Teesside being honest I feel I need to move 60 miles south even to be in the North, the UK does not end at Leeds and my main objection is purely that I think HS2 will benefit London far more than the near north

  • Gareth makes some valid points. Should pensioners have increases to their pensions above what other groups like the long term sick and disabled get. (Remembering that the basic starting figure for pension credits is about double of the starting level for employment and support allowance.)

    @ Liberal Neil
    The government believes that half of what pensioners get is adequate to live on.
    The largest part of the extra pensioners receive on top of the pension credit are benefits for Council Tax and for paying their rent. This doesn’t seem to me a bad idea, because those who own their own home don’t need extra funds as they don’t have rent to pay.

    @ Michael
    The government paper you give the link to states by 2060 the single-tier pension will have increased from 6.9% to 8.1% of GDP allowing for economic growth. This is over 1% of GDP every 40 years or so. This is not really sustainable over the long term. Therefore at some future date the triple lock will have to be reduced. We should do it sooner rather than later and replace the pension with a Citizens Income (which is increased by the same rate for everyone).

  • Gareth is right. The economic illiteracy of a pledge to maintain the triple lock lies in its ratchet effect – no matter how everyone else does, the ever-growing army of pensioners will do slightly better. It’s not sustainable in the long term, and we will be left explaining why we can’t fulfil our pledge or why we’re dropping it in the next election.

  • On a slightly different issue, but one you address at the beginning of your article:

    Gareth, it is a major concern of mine that the party has developed very little policy, or at least, very little policy that will attract headlines and win us votes. We seem miles behind the tories and labour on this. It just feels like we’ve been in government, but not developed our own major policies.

    Am I wrong in thinking this? Has major, eye catching, policy been developed that has passed me by (a genuine question)?

    If I am (somewhat) correct, then hasn’t conf failed us and surely it is right that the leadership starts floating some big ideas out there? These last few weeks feel like the first time we’ve said anything about what a Lib Dem Govt would do (beyond the coalition).

    Would be interested to hear your views on this… afterall, we’re running out of time!

  • We can’t afford the triple lock for the benefit of ‘British’ pensioners being put into law, but we can apparently afford to put the commitment to 0.7% of our GDP going to overseas aid for the benefit of ‘ foreign’ nationals.

    Speaks volumes!!

  • Tom

    “it is a major concern of mine that the party has developed very little policy, or at least, very little policy that will attract headlines and win us votes”

    That – even more than Nick Clegg – is the main reason the the LibDems are doing so badly. Last time there was tuition fees, raising the lower level of income tax, no more broken promises, a new kind of politics. a clean cut young leader who was trusted. Now there is nothing, nobody trusts the leader and no policies that catch the imagination – a perfect recipe for disaster.

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