The impact of the state pension triple lock is modest and should be maintained, report finds
- University of Sheffield analysis finds concerns that the state pension triple lock is too expensive, or unfair on younger generations, are misplaced
- The triple lock helps to enhance the meagre value of the UK state pension compared to other developed countries, primarily benefiting younger people, but only relatively slowly
- Despite the existence of the triple lock, it will take almost 40 years for the value of the state pension to reach 35 per cent of average earnings.
The impact of the state pension triple lock has been exaggerated – and the policy or any equivalent measure should be maintained over the long term, according to a new report by the University of Sheffield's Sheffield Political Economy Research Institute (SPERI).
The triple lock means that the state pension is uprated each year by average earnings growth, inflation (measured using the consumer price index) or 2.5 per cent – whichever is highest. The 2.5 per cent ‘lock’ means it has risen much faster than working-age benefits in recent years.
However, the UK has one of the least generous state pension systems in the developed world. The triple lock is playing an important but modest role in enabling the state pension to ‘catch up’ to similar countries over the long term, according to the University of Sheffield's SPERI institute report.
Since its introduction in 2010, the triple lock has increased expenditure on the state pension by around just £1 billion per year (compared to a system where the state pension is uprated by only a ‘double lock’ of earnings growth or inflation).
The report found that given the criticism the triple lock attracts, state pension expenditure since 2010 would actually have been higher had the policy not been introduced and the previous policy of uprating the state pension using the retail price index (an alternative measure of inflation) been maintained.
The full rate of the new, single-tier state pension represents 31.4 per cent of average earnings. Original analysis undertaken by SPERI shows that even with the triple lock, it will be 11 years (2028) before the value of the state pension surpasses 32 per cent of average earnings.
Similarly, the report found, it will be 20 years (2037) before the value of the state pension surpasses 33 per cent. An individual aged 30 today can expect to retire on a state pension worth only 35 per cent of average earnings when they reach state pension age in 2055.
Dr Craig Berry, Deputy Director of SPERI at the University of Sheffield and author of the report, said: “The triple lock should be maintained. The policy increases the costs of the state pension only modestly, and represents perhaps the least the government can do to ensure that the value of the UK state pension starts to rise, from a very low base, towards the average for highly developed countries.
“Young people are the main beneficiaries of the triple lock. There are several options the government could pursue to enhance the value of the state pensions today’s young people will become entitled to when they retire – but few have the elegant simplicity of the triple lock."
He added: “The underlying problem with the triple lock is that the 2.5 per cent lock only applied when the economy is experiencing a downturn. The government could therefore look instead to over-index the state pension when the economy is in good health. This would enable the same policy goals to be achieved without jeopardising the long-term interests of today’s young people.”
The full report can be viewed at http://speri.dept.shef.ac.uk/publications/speri-briefs/. Through its series of British Political Economy Briefs, SPERI hopes to draw upon the expertise of its academic researchers to influence the debate in the UK on sustainable economic recovery.
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