Why experts fear Labor is planning a new attack on pensions, despite Starmer’s promises. Here’s what you could try to change and what it would mean for you

You know the state pensions triple lock is in trouble when the minister appointed to oversee pensions policy has previously branded it “silly”.

Of course, newly appointed Pensions Minister Torsten Bell made the comment five years ago and wearing a different hat, as Jeff Prestridge explains alongside. But we have yet to receive any assurance that Bell’s views have changed.

Conservative leader Kemi Badenoch’s comments last week made the outlook for the triple lockdown even bleaker. He said the Conservatives would consider testing the system. Such a measure would likely result in the worst-off pensioners receiving the full state pension, while those who had built up their own savings would receive less.

So what are the prospects for the state pension triple lock? Would either party really dare to abandon or soften a much-loved policy that has transformed pensioners’ living standards since its introduction in 2010? And what could it be replaced with? Research wealth and personal finances.

What exactly is the triple lock?

The triple lock on state pensions promises that annual payments to pensioners will rise to the highest of inflation, average wage growth or 2.5 per cent. This April, the new full state pension will rise by 4.1 per cent or £472 a year, which is last year’s average pay growth figure (measured between May and July year on year). That’s because wage growth last year outpaced inflation at both 1.7 percent and 2.5 percent.

What are the chances of a change in the triple lock?

It is not very likely – at least in the coming years – because Labour’s election manifesto promised that the party would retain it. But you would be forgiven for being skeptical that this is an irrefutable promise. The manifesto also did not promise any increase in national insurance, and the first budget included an increase in national insurance for employers.

The Waspi women also learned the hard way last month that government promises can be broken when they feel budgets are restricted. When in opposition, numerous Labor ministers supported calls to compensate women born in the 1950s who were unaware of changes to the state pension age. Now in power, the Labor government said it would not provide compensation to these women because it claims it would be unaffordable.

Any change to the triple lock would be deeply unpopular, especially among older generations. But it’s not hard to argue that maintaining it is unaffordable. The Government may also be emboldened by Ms Badenoch’s suggestions that it might support changes to the state pension as it could, in theory, receive less political opposition than it would have received from her predecessors, who pledged to leave it unchanged.

Even if the triple lock survives the next few years, its days may be numbered in the long term. This is because the cost of maintaining it is rising rapidly due to above-inflation increases and a growing pensioner population.

It cost £124 billion in the previous financial year and is expected to rise to £169 billion in 2029-2030. By then, the state pension will represent the equivalent of 6.2 per cent of GDP, more than the combined daily budgets of the Department of Education, the Home Office and the Ministry of Defence.

So how might this change in the future?

A government that wants to reduce the cost of the state pension has several options. First, you could downgrade the triple to a double block.

That would mean the state pension would rise in line with inflation or rising wages, but the 2.5 per cent element would be removed. This would eliminate the possibility of pensioners seeing their payments rise faster than workers’ incomes and above price increases.

Secondly, it could opt for a “smoothing” option advocated by pension company Aegon. Pensioners would receive at least an increase in inflation.

They would also get an additional raise if wage growth had been higher than inflation on average over the previous three years.

Steven Cameron, director of pensions at Aegon, says: “This avoids widely fluctuating outcomes at times when both inflation and earnings growth are unpredictable, smoothing things out but ensuring pensioners continue to participate in sustained increases in pension wealth. the nation.”

He adds: ‘If the triple lock is left as it is, over time, state pensioners will get increases above average wage growth. “This lacks intergenerational justice and is not sustainable.”

A third option to increase the affordability of the state pension is the one raised by Badenoch: means testing.

At the moment, the amount of the new state pension you receive is not affected by any other income you receive. It doesn’t matter if you don’t have a cent to your name or you are a millionaire: if you have contributed to Social Security for at least 35 years, you will receive the same monthly amount.

A means-tested system would involve looking at what other income – and potentially what other assets – you have to help determine how much state pension you receive. This model is used in Australia.

It would not be the first time that means tests have been applied to pensioner benefits.

After all, one of Chancellor of the Exchequer Rachel Reeves’ first moves was to test the winter fuel allocation.

A fourth option would be to increase the state pension age. Mike Ambery, director of retirement savings at pensions company Standard Life, says this option would involve “increasing the state pension age further and faster than currently planned”. This is currently projected to increase to 67 in 2028 and 68 in 2046.

Former Pensions Minister Ros Altmann, a veteran advocate for older people’s rights, has argued that such a measure would plunge more people into poverty in old age.

She says it would skew spending on state pensions towards wealthy older people who tend to live longer, and penalize those who are in poorer health.

Reform versus stability

Most pension experts agree that some form of state pension reform is necessary. However, they warn that the specter of change undermines confidence in it.

Helen Morrissey, head of retirement research at investment platform Hargreaves Lansdown, says: “The constant rumors threaten to undermine people’s confidence in the system and there is a risk this could deter them from doing things that could increase their resilience. in retirement, like saving for a pension. . ‘

Let’s hope Bell puts his cards on the table soon and reveals whether he is still advocating triple lock reform – or whether its future is assured under his watch.