Pensions triple-lock ‘should be scrapped by 2025’
Cridland Review dubs guaranteed 2.5% annual rise unaffordable and calls for acceleration of retirement age to 68 sooner than scheduled
An independent review of the future of state pension arrangements has recommended that the so-called “triple lock” on payment level rises be scrapped over the course of the next parliament.
The review, led by John Cridland said the lock – which guarantees that the basic pension rises by a minimum of 2.5% a year – had repaired much of the erosion in the value of state pensions over the past four decades, but would be open to allegations of “intergenerational unfairness” if it continued.
The triple-lock element of the guarantee comes because pensions could rise by the rate of inflation, or the rate of growth in average earnings, if either was above 2.5%.
Cridland, who is a former member of the Low Pay Commission and currently chairs Transport for the North, said that by the 2020s, the basic state pension would be 24% of average earnings, up from 16% in 2010.
“It was 26% in 1979 when the earnings link was withdrawn” he said. “This is welcome restoration.
“In the longer term, the retention of the triple lock is forecast to become a very significant factor in the cost of the state pension.
“It is estimated that it would be responsible for 0.9% of GDP in 2066/67. This will raise questions of intergenerational fairness as between those in work and those in retirement.”
The report said that extending the age at which people became eligible for the state pension was “close to the limit” in terms of the savings that could be achieved, and that further savings would be better delivered by moving to a system of uprating the state pension by earnings.
“We therefore recommend that the triple lock is withdrawn in the next parliament,” Cridland concluded.
Under the Pensions Act 2007, state pension age is due to rise to 68 by 2046, but Cridland’s review called for the timescale for the move to be brought forward and effected over a two-year period from 2037-9.
The review said the earlier dates would reflect increased longevity and the principles of intergenerational fairness, as projections indicated the move would still allow people to spend one third of their adult lives in retirement.
It added that if Office for National Statistics projections were borne out an increase in the state pension age to 69 was likely to be needed, but not for “at least a decade after the increase to 68”.
Cridland accepted the move would have an impact on occupational pension schemes in the public sector, which have a normal pension age linked to state pension age, but said that such factors should not be a “driving factor” behind the wider recommendations.
“We expect that if the secretary of state decides a change in state pension age, HM Treasury will consult on the impact on normal pension age for such schemes,” he said.
Cridland’s final report was released on the same day the Government Actuary’s Department published a report on the state pension age that broached the potential for increasing the eligibility to 70 from the mid 2050s.
The GAD report stressed that while the government was “considering” changes to the state pension age timetable, it had not committed the modelling options set out in the report.
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