- Chancellor Jeremy Hunt confirmed over the weekend the Conservative Party would recommit to the state pension triple-lock in its election manifesto (Source: BBC interview)
- Total state pension spending is expected to hit £124 billion in 2023/24, according to DWP estimates (Source: The triple lock: How will State Pensions be uprated in future? (parliament.uk))
- Each 1 percentage point increase in the state pension is expected to cost the Exchequer around £1.3 billion in 2024 terms*
- Over the next five years retaining the triple-lock could cost taxpayers around £13 billion versus linking the state pension to inflation
- The full new state pension could pass £13,000 a year by 2030 as a result of the triple-lock
Tom Selby, director of public policy at AJ Bell, comments:
“The state pension represents a colossal chunk of government spending, with this year’s bill expected to hit an eye-watering £124 billion. This means chancellor Jeremy Hunt’s commitment to retaining the triple-lock for the next Parliament would also come with a hefty price tag for UK taxpayers.
“If inflation returns to the target level of 2% as anticipated over the coming years and we assume each extra 1 percentage point increase in the state pension costs around £1.3 billion, that implies a cost of around £13 billion between now and 2030 versus increasing the state pension by just CPI inflation.
“This may be viewed as a price worth paying given how much of a vote winner the triple-lock is likely to be, with retirees the main beneficiaries. The value of the state pension likely to surge past £13,000 by the end of the decade if the triple-lock is retained, around £1,500 higher than the 2024 figure.
“However, the elephant in the room remains exactly what the goal of the triple-lock is. Neither the Conservatives nor Labour have ever set out what they believe a fair value for the state pension is or how long people should receive it, preferring instead to blindly stick to a policy they know is popular. This is perhaps understandable ahead of a general election, but at some point, politicians will need to come clean with the public about what the triple-lock is trying to achieve and when it will ultimately come to an end.
“There should also be a review of exactly how state pension increases are applied in light of the dramatic fluctuations in both inflation and earnings we have seen since the pandemic. A smoothed inflation and earnings figure could make future rises much more predictable.
“For this necessary reform to happen, politicians will need to show bravery and step beyond the current ‘Will they? Won’t they?’ debate over the triple-lock. The state pension remains the bedrock upon which people’s retirement plans are built, so embedding at least some certainty into the system is crucial to help Brits plan with confidence. Given how politically charged debates over the state pension can be, an independent commission could be necessary to build cross-party support and deliver reforms that stand the test of time.”
*Increasing the state pension by 8.5% rather than 7.8% in April this year will cost the government an estimated £900 million over 2024/25, according to this Parliamentary briefing note: The triple lock: How will State Pensions be uprated in future? (parliament.uk) Therefore, increasing the state pension by 1 percentage point would cost an estimated £1.3 billion.
