Triple lock has given OAPs a £1,200-a-year income boost report shows, but report finds ministers could face ‘insurmountable pressure’ to raise the state pension age even faster
- Mechanism could mean the state pension will rise by a further eight per cent
The pension triple lock has boosted older people’s incomes by more than £1,200 a year, a report shows.
The Institute for Fiscal Studies found that the new state pension is worth £24 a week more than it would have been under the system left behind by the last Labour government – equal to £1,248 a year.
But the study warns that the soaring cost of the system could put ‘insurmountable pressure’ on ministers to raise the state pension age even faster.
The findings come as the Treasury braces for new earnings figures next week that could boost the state pension by a further eight per cent, adding £3 billion to the expected bill.
The triple lock was introduced by the coalition government in 2010 to protect the value of the state pension, following derisory increases of as little as 75p a week under Labour.
The system means that the state pension is guaranteed to rise in line with either earnings or inflation or 2.5 per cent, whichever is the highest.
The pension triple lock has given a £1,200 annual boost to the incomes of OAPs, a report has shown
Today’s study from the IFS finds that the system has succeeded in restoring the value of the state pension to equal roughly 25 per cent of average earnings for the first time since 1980.
If the new state pension had simply been increased in line with inflation it would now be worth just £180 per week – 11 per cent less than its current value of £204. It also costs the Treasury £11 billion more than it would have done.
The old state pension, paid to people who qualified before 2016, is lower at £156.20, but has risen at the same rate.
However, the IFS warns that the system produces fast-growing and sometimes highly unpredictable costs for the government.
It says the bill to the taxpayer could rise by anything between £5 billion and £45 billion by 2050, depending on what happens to inflation and earnings.
Report author Heidi Karjalainen said: ‘A real risk is that retaining the triple lock for too long increases state spending so significantly that it leads to insurmountable pressure for a much higher state pension age.
‘This would particularly affect people with poorer health, who struggle to remain in employment until they reach state pension age.’
Ministers have committed to retaining the triple lock, with Downing Street yesterday saying there were ‘no plans’ to change it. Labour is also expected to commit to the system unless the government abandons it before the election.
However, campaigners fear there will be fresh pressure to scrap it after the election. Dennis Reed, director of campaign group Silver Voices, last night said the IFS were wrong to focus on the cost of giving people dignity in their old age.
Mr Reed said: ‘This report shows it’s a good job we have had the triple lock for the last decade. Without it there would be far more pensioners in poverty.
‘But despite that the IFS seem to think it is too expensive. I would ask them what the alternative is – cutting incomes for pensioners struggling to get by?
‘I would challenge these people on their fat think tank salaries to try and get by on £156 a week, which is the value of the old state pension.’
The mechanism, which guarantees an increase in the annual payout in line with the highest out of inflation, earnings or 2.5 per cent, could see the state pension rise by 8 per cent based on next week’s figures
The triple lock resulted in the state pension rising by 10.1 per cent this year.
Inflation and wage data from September is used to calculate the triple lock each year. Jeremy Hunt warned this week that a ‘blip’ in prices is likely to lead to inflation rising above seven per cent again when the new figures are published.
But Treasury sources believe average earning figures will be even higher when they are published next week.
Pay growth, rose to an annual rate of 8.2 per cent in the April to June period and economists expect a similar figure to be published next week for the May to July period.
A rise on this scale would see the state pension rise by £892, or £16.71 a week. A planned review of the state pension age has been shelved until after the election.
Source: Read Full Article