Tag Archives: pensions

Let us travel all the way back to 2010, a year in which a jubilant “Cleggmania” contrasted with a dire backdrop. The economy was in bad shape following the 2008 financial crash. We had just failed to reach an agreement with Gordon Brown’s Labour Party (the maths wasn’t ‘mathing’), and as a result went into a coalition with the Conservatives. Austerity was the word on everyone’s lips, and for many of us, it was an inevitable devastation for our families and communities.

However, there was a Liberal Democrat Minister – who is often forgotten in the re-litigation and discourse about that fateful coalition – Sir Steve Webb.

Webb sought to correct a major structural inequity; the shambolic state of the country’s state pension. Margaret Thatcher, who many gleefully refer to as “Milk Snatcher”, had decided to break the earnings link of the state pension in 1980. For decades, the pensions had only ever been uprated by inflation – which meant pensioner incomes fell steadily behind wages. 

So what was his solution? The Triple Lock – and despite my blatant misgivings of it, I think it was a good idea at the time. It helped restore financial security to millions of pensioners who had been neglected.

But policy solutions are rarely permanent – especially economic ones. The problems they fix evolve and mutate, the numbers change, and even good ideas can outlive their purpose. Not even Beveridge’s reforms were meant to last forever.

Since 2010, when Webb introduced the policy, Britain has faced a saga of crises: Brexit, COVID-19, the Ukraine War, and Liz Truss.

Our population is ageing, productivity is stagnant, employment is fragile (not helped by Labour’s Employer NICs policy), and wages grow at a snail’s pace. These factors have led to crowding out of other welfare expenditure, the support ratio (the number of people supporting each pensioner) falling, and a squeeze on the working-age population.

The ground beneath the Triple Lock has become incredibly unstable. The Office for Budget Responsibility’s own findings tell us it will cost an additional £15.5 billion a year by 2029/30, while welfare expenditure elsewhere is likely to be slashed further by Rachel Reeves.

Make no mistake, the Triple Lock remains a liberal achievement. But it is also a policy mechanism – and like all mechanisms, it can outlive its purpose. What was once an act of fairness is now a major fiscal liability. We are transferring wealth from younger and working-age citizens to retirees faster than any major economy, according to the Resolution Foundation.

As liberals, we believe in fairness, dignity, and liberty through economic security. Therefore, we cannot – in good faith – continue to justify the existence of a policy that now undermines all three. There is a way to correct this course and protect the State Pension, and it eliminates the liability without hurting the poorest pensioners: means-testing.

Universality, in theory, is a nice idea – it avoids the bureaucratic stress of thresholds, tapering, cliff-edges and tribunals – but it is highly inequitable. People say that it works because of recapture, but does it really? When you give money to the wealthiest, richest demographics, those with the lowest Marginal Propensity to Consume, you do not get nearly as much – if anything – back.

That’s why we must consider a means-tested approach that protects those in genuine need while restoring balance, such as:

• We should make the Double Lock the default (higher of CPI or earnings). This removes the problematic 2.5% ratchet for most people, and in turn potentially still saves around £12 billion based on OBR figures.
• But that does not mean getting rid of the Triple Lock entirely, if we let the poorest pensioners (bottom 20-25% based on current income) retain the Triple Lock, they are not losing support from the State Pension. Moreover, the savings we make from equitable reforms means we can support them better, too.
  
• For those in the higher-rate tax band of 40%, or equivalent in terms of pensionable income, they do not get either the Triple Lock or Double Lock; they get the Single Lock (CPI only). Their pension grows with prices, but it does not grow faster than the working-age tax base. This could save around £1.3 billion at steady-state.
  
• Finally, those with the highest pensionable income – say £70k-£90k+ – do not need the state pension and therefore shouldn’t receive it. We shouldn’t be subsidising avarice when children are going to bed hungry and people are freezing to death on the streets in Winter. This could save around £5.75 billion per year, after admin costs.