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The Institute for Fiscal Studies has suggested scrapping the triple lock pension and replacing it with a target-based system that rises at least in line with inflation every year.
Scrapping the triple lock pension and linking future state pension increases to earnings would save taxpayers billions of pounds as the population ages, according to a new report by the Institute for Fiscal Studies (IFS).
The think tank says instead of the triple lock which commits to uprating the basic and new State Pension every year by the highest of earnings growth, inflation or 2.5%, the Government should set a target for the new state pension, expressed as a share of median full-time earnings so that the state pension would in the long run keep pace with growth in average earnings. Both before and after the target level is reached, it says the state pension would continue to increase at least in line with inflation every year.
The report also suggests that the state pension age should only rise as longevity at older ages increases, and never by the full amount of that longevity increase. To increase confidence and understanding, it says the government should write to people around their 50th birthday stating what their state pension age is expected to be, meaning their state pension age would then be fully guaranteed 10 years before they reach it.
The report says the reason for the changes is that the ageing of the population will put more pressure on public spending in the coming decades, from state pensions to health and social care. It adds that, while the triple lock increases the value of the state pension relative to average earnings over time, it does so at an arbitrary rate without any policy goal for what the state pension should be in the future, leaving uncertainty and hitting groups with lower life expectancy harder. Moreover, it says that many people are not confident in the system.
The IFS backs a flat-rate state pension available to all, rather than one that is linked to earnings as it says the latter would mean increases in taxation to finance higher state pensions for middle and high earners while means testing would disincentivise saving and undermine automatic enrolment.
Another issue it looks at is allowing early access to the state pension at its current rate, but it says this could deepen pensioner poverty in the long run and place greater demands on means-tested support for pensioners.
The report states: “Together with a commitment from the government to target a level of the state pension relative to average earnings, the ‘four-point pension guarantee’ addresses some of the key challenges in the current state pension system, and ensures people can have confidence and certainty over the state pension as a future source of income to protect them from income poverty and provide a solid bedrock on top of which they can build private pension saving.”
Its suggestions on the state pension system will feed into the final recommendations of the Pensions Review which are due to be published in Summer 2025.