State pension payments went up 4.1 percent this year thanks to the triple lock
The Government could bring in a cap on how much the state pension goes up each year in line with the triple lock, as the costs of the policy ever increase. Recent OBR estimates suggest the cost of the triple lock could reach £15.5billion a year by 2029/2030, three times the amount previously projected.
The policy guarantees state pension payments increase each April in line with the highest of 2.5 percent, inflation or the rise in average earnings. As the costs of the policy continue to mount, experts have suggested one way the Government could try and curb the state pension bill is to bring in a cap on the triple lock.
Martin Hartley, group CCO of international consultancy emagine, said ministers could add a “cap on annual increases” or create a dedicated pension reserve fund. He explained: “This would allow the Government to smooth pension payments over time and align uprating decisions with long-term fiscal health rather than short-term political considerations.”
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Caitlin Southall, director of SSAS Transformation & Proposition at financial services group WBR Group, also said the Government could introduce an “upper limit on the state pension increases” so policymakers can more accurately predict how much it will be.
But she thinks there is a better solution: “I would suggest that the best way to approach this is to change the mechanism for annual increases so that the increase is in line with average earnings. This would ensure that retirees and the working population would theoretically see their income increase similarly.”
Labour has committed to the triple lock for the duration of this Parliament. But Ms Southall warned that the rising costs of the policy could force the Government to stand down from this pledge.
She warned: “Absolutely the Government could be forced to make changes to the policy during this Parliament. Because of the current mechanisms to increase the state pension, the cost of the policy is unpredictable.
“This is especially problematic noting the financial ‘black hole’ that the Government are currently battling.” She pointed to some other concerns around the triple lock as the working age population has to foot the bill.
The expert said: “The cost of maintaining the policy is borne by the working population, who are also dealing with increases in the cost of living, housing challenges and tax increases. People benefitting from the state pension are getting guaranteed increases each year, however this might not be mirrored for the working population in terms of income – thus perpetuating intergenerational unfairness.”
State pension payments rose 4.1% in April thanks to the triple lock. This lifted the full new state pension from £221.20 a week up to the current £230.25 a week.