Pension triple lock ‘unsustainable’ and must be scaled back, says IFS

triple lock pension
triple lock pension

The state pension triple lock is "not sustainable" and must be scaled back to ensure the Government can afford to support future retirees, a think-tank has warned.

The Institute for Fiscal Studies (IFS) said growth in pensioner benefits had far outstripped spending on working-age payments since 2010, when former chancellor George Osborne began cutting back benefits.

Prioritising pensioners implied a “significant intergenerational transfer”, which the IFS said might not be as generous in the long-term.

It added: “In the limit, this policy is not sustainable as it implies pensions becoming an ever-increasing share of national income, and it is possible that the population currently of working age will not all end up benefiting in full from the same generosity.”

The triple lock has long been championed by the Conservative Party, and ensures the state pension rises by the previous September's inflation, wage growth or at least 2.5pc.

April's 10.1pc increase will boost weekly payments for those on the full state pension to £203.85.

The IFS analysis highlighted that real spending per working-age adult had climbed from around £1,200 per year in the late 1970s to £3,200 at the start of 2010, before falling back to £2,500 just before the pandemic.

By contrast, pensioner spending has climbed steadily, including during the 2010s.

The IFS said: "On the eve of the pandemic, the working-age benefit bill made up 4.3pc of national income, while the pensioner bill accounted for 5.5pc. That 1.2 percentage point gap is around the highest since comparable records began in 1978–79, and has steadily grown since the mid 1990s.

"The priority given to transfers made in the working-age portion of life versus those made during retirement is itself an important choice, and has in recent years helped shape the austere context within which working-age transfer policy is made."

The IFS noted that basic support for a single person with no other source of income is now 137pc higher for those just over pension age than those of working age. This compares with 32pc in 1990.

It added: "This partly reflects the ageing population, but also policy change – over the past decade or so there have been significant cuts to the working-age benefit system, while pensioner benefits were largely protected or increased."

The IFS also said changes to working age benefits since the late 1990s had been successful in pushing more people into work, but had also left many trapped in low paid, part time jobs, with little incentive to work more hours.

It suggested that the benefit to taxpayers overall had been limited because many of these people who found a job paid little in tax and were often still entitled to in-work benefits due to the lack of financial incentive to work more hours. Doing so meant more of their benefits would be clawed back.

The think-tank said former chancellor Gordon Brown's expansion of tax credits, which offered income top-ups for low-earning households, mostly increased support for working 16 hours per week but “often implied strong financial disincentives to go further”.

It added that the switch to universal credit, which has replaced a raft of other benefits, "especially increases financial incentives to do so-called ‘mini-jobs’ at very low hours, and makes little difference to the incentive to shift from full-to part-time work".

Overall, it said the incentive to go from part to full-time work had been weakened. In 1997 to 1998, it implied losing an average of 52p to taxes or withdrawn benefits for every £1 earned. That amount is now 58p.

Just over 8.2 million people in the UK currently work part-time. This represents a quarter of the workforce and is up from six million in 1992.