The Basic State Pension ‘Double Lock’: Friend or Foe?
May 30, 2017
As part of her latest Conservative manifesto, Prime Minister Theresa May revealed that her party are considering getting rid of the ‘triple lock’, which guarantees a minimum increase in the basic state pension each year. How much it increases by depends on which is higher – the current rate of inflation or average earnings. If either of these exceeds 2.5 per cent, the government will base the increase on the highest. If both the cost of living and average earnings is less than this, they will increase the basic state pension by 2.5 per cent.
Thanks to the triple lock, people receiving the basic state pension are now over £1,040 better off than they were back in 2011. But while most of Britain’s political parties have pledged to keep the triple lock in place if they win the general election in June, the Conservatives plan to replace it with a ‘double lock’, which would come into play from 2020.
Despite the Tories’ latest manifesto stating that money saved as a result of the double lock would be spent on improving the UK’s social care, the plans have been met with apprehension.
What Would This Mean for Those Receiving the Basic State Pension?
According to The Institute of Fiscal Studies (IFS), in the long term, the Conservative plan to shift from a triple lock to a double lock would have little positive impact. They claim that it would neither improve affordability nor resolve the pressures that an ageing population will put on public finances over the next few years.
The economic think tank has estimated that keeping the triple lock in place means basic state pension spending would amount to just over seven per cent of Britain’s income by 2065-66, according to an article recently published by Citywire.
However, if the Tories remain in power, the introduction of their double lock would see basic state pension spending decrease by 0.2 per cent of national income over the same period of time (around £5 billion).
Should We Be Worried?
The Conservatives’ plan to drop the triple lock in favour of a double lock has divided opinion in the financial sector. IFS Deputy Director Carl Emmerson and Senior Research Economist Andrew Hood told Citywire that the reason for these similar spending commitments was due to the fact that inflation and earnings rarely rise above 2.5 per cent. This means that scrapping the 2.5 per cent element of the triple lock would in fact do very little to change the projected long-term generosity of the state pension.
In contrast, TUC General Secretary Frances O’Grady told the BBC, “There are more than 1.5 million pensioners living in poverty in Britain, with one of the lowest state pensions in the advanced world. The triple lock was designed to restore the basic state pension after decades falling behind wages. That job is not yet finished; therefore, this is a bad call.”
What really lies ahead for the basic state pension will remain to be seen. And, of course, there is always a chance the Tories will not win the general election.
1. The Guardian – https://www.theguardian.com/money/2017/apr/27/pensions-triple-lock-questions-answered
2. BBC News – http://www.bbc.co.uk/news/business-39960309
3. Citywire – http://citywire.co.uk/money/ifs-tory-double-lock-won-t-make-state-pension-more-affordable/a1018025
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