This time last year, speculation that earnings growth in 2021 could exceed 18 per cent was used to justify calls to pre-emptively suspend the triple lock, which increases the state pension in line with whichever is highest out of earnings, inflation or 2.5 per cent.
Ultimately the government decided against ditching its manifesto pledge and delivered the 2.5 per cent rise due – which worked out at a weekly increase of £4.40 to the New State Pension and £3.35 to the Basic State Pension.
But now the argument is being made again. Although that 18 per cent figure has clearly not materialised, this year the formula is set to deliver an increase in line with earnings growth, which is currently running at 5.6 per cent.
We don’t yet have the figures for the relevant May to July period. But even if we do see higher than usual earnings growth government would be unwise to drop its support for the triple lock for three reasons.
We still need the triple lock
The measure was introduced in 2010 to undo the damage caused by the decision to delink the state pension from earnings in 1980.
During the three decades when the Basic State Pension was linked to prices, which generally increase more slowly than incomes, it lost around 40 per cent of its value relative to average earnings.
This means that, even after 10 years of the triple lock, the UK state pension is less generous than most comparable countries.
On average our state pension provides a replacement rate of just over 20 per cent of pre-retirement income. The average among countries in the Organisation for Economic Co-operation and Development is almost twice as high, and European Union citizens enjoy an average replacement rate of over 45 per cent.
The triple lock has 30 years of decline to undo. It will take more than one ‘good year’ to achieve this. Until our pensions can be compared to neighbouring countries talk of scrapping the triple lock is premature.
We can afford the triple lock
We spend less on our state pension than many countries.
In 2019 spending on state pensions in the UK amounted to 4.7 per cent of gross domestic product – less than half as much as countries like France, Finland and Austria, and well below the OECD average of 6.5 per cent.
And we’ve learned over the last year and a half that the argument that ‘we can’t afford that’ doesn’t wash.
What this government decides to spend money on reflects its political priorities, not the current economic reality
Calls to suspend or modify the triple lock are just part of a wider attempt to return to the failed policies of austerity that did so much damage after 2010.
We saw in that period that ideologically driven attempts to constrain public spending can damage the public finances by restricting economic growth.
The government can’t make the same mistake again. Boosting the incomes of pensioners can play a significant role in restoring local economies after the devasting impact of Covid-19.
Young people have the most to lose
The argument that moving away from the triple lock would benefit young people is disingenuous at best.
Young workers would in fact be the biggest losers from any attempt to water down the triple lock, because the increases it delivers accumulate over time.
TUC research has found that switching from the triple lock to an earnings link would cut about £700 a year from the value of the state pension by 2050.
It would also push around 700,000 more pensioners into poverty.
So the triple lock remains necessary and affordable, and has a vital role to play in making sure that today’s workers have the security of a decent state pension in future.
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