(Alamy)
3 min read
The Tony Blair Institute (TBI) think tank has called for the government to scrap the “unaffordable” triple lock on state pensions.
In a new report published on Friday, the think tank said current pensions policy is unsustainable and outdated and should be replaced by a more flexible alternative.
“Britain’s state pension system was built for a different era. We can’t keep pouring money into a system that is increasingly unaffordable,” said Tom Smith, TBI Director of Economic Policy.
Under the existing policy, pensions are guaranteed to rise by the highest of inflation, average earnings and 2.5 per cent.
However, there have been growing warnings that factors like people living longer, a falling birth rate and high inflation levels mean that it is not sustainable in the long term.
The TBI report points to the number of pensioners in Britain being expected to rise from 12.6m this year to 19m in 2070, with spending on the state pension expected to increase from 5 per cent of GDP to 7.5 per cent, costing the Treasury an additional £85bn a year.
There is also an argument that to maintain the triple lock in its current form would worsen generational inequality, given the financial challenges faced by younger people.
Despite these warnings, the triple lock continues to enjoy broad cross-party support, partly because older people are seen as a key voter group. Chancellor Rachel Reeves said last week that the government was not changing its triple lock policy.
TBI’s Smith said it would take “political leadership” to reform the policy, but that doing so would create a system “fairer, more flexible, and designed for how people live today”.
The think tank has proposed what it calls a new ‘Lifespan Fund’, which would replace the fixed pension age with a system whereby one full year of contribution would add half a year of entitlement, up to a maximum of 20 years of support.
It would also allow people to use the fund earlier in life to support them in key moments like finding work, funding child care, and looking after a sick relative, with safeguards included to ensure people do not draw out too much too early.
Smith said the model “keeps the promise of a secure retirement while making the system more flexible and financially sustainable” and would be “the upgrade Britain needs”.
The TBI estimates that these reforms would keep long-term state pension spending at around 5.5 per cent of GDP, rather than allowing it to rise towards 7.8 per cent, avoiding roughly £66bn a year in additional costs by 2070.
The intervention was welcomed by the Labour MP for Dunfermline and Dollar, Graeme Downie, who, in a recent piece for The House, called for the triple lock to be reformed to help fund greater defence spending.
“This is the kind of conversation I called for a few weeks ago,” he told PoliticsHome.
Our welfare needs to be fit for the future, helping those who need it most and being a strong safety net, effectively supporting people to get them into work and keep them in work to drive economic growth, and to fund critical national priorities like defence, which are vital to protecting our people and our democracy.”