A retirement expert has called on the Government to carry out a review of the state pension and the triple lock as the cost of the policy ever increases.
Several analysts have warned ministers may soon have to move away from the triple lock towards a less generous system.
OBR estimates indicate the state pension will cost the Government £15.5billion a year by 2029/2030, three times previous estimates.
The triple lock ensures state pensioners see their payments go up each April, in line with the highest of 2.5%, the rise in average earnings or inflation
Kirsty Anderson, retirement specialist at savings provider Quilter, has said the policy could soon become too expensive. She explained: « While its role in supporting older generations is well-meaning, it is well documented that the triple lock in its current form poses a risk to fiscal sustainability.
« While reform is likely to come, that does not mean it would be removed without a clear plan on what comes next. While it has good intentions, the triple lock lacks a defined benchmark for pension levels and risks placing an unsustainable burden on both taxpayers and future generations. »
She called on the Government to launch a consultation on the topic of pension uprating, and to carry out a review of the state pension’s adequacy.
The full new state pension currently pays £230.25 a week, or £11,973, although most state pensioners get less than this.
Ms Anderson said the review should be used to set out Government policy for the future: « Such a review should also involve a cross-party agreement on what proportion of mean full-time earnings the state pension ought to reflect.
« The triple lock should only be brought to an end when the state pension has reached this level. Once this standard is set, the uprating mechanism could then be reformed to track average earnings growth, with built-in flexibility to accommodate periods of high inflation.
« For instance, if earnings growth temporarily lags price increases, the state pension could be linked to inflation until real wages recover, at which point it would revert to its earnings-based benchmark. »
She said this approach would better reflect the overall health of the economy while protecting pensioners’ purchasing power.
Another expert said Labour could look at tax changes to help protect the triple lock and keep the state pension affordable.
Amy Knight, personal finance expert and business commentator at NerdWallet UK, said: « One approach the Government could consider is to offer less generous tax relief on workplace pension schemes and ask employers to make up the shortfall. »
She explained how this could work: « Currently, employers are required to pay a minimum contribution of 3 percent of the worker’s salary into a workplace pension scheme.
« Tax relief boosts the employee’s 4 percent net contribution effectively to 5% (a portion of your income that would have been deducted as tax goes into your pension instead).
« If companies were forced to increase their contribution, the amount of tax relief could be reduced, without shrinking the saver’s pension. »
