The triple green is popular after lifting millions of pensioners out of poverty, but is increasingly under attack for being unaffordable. While Hunt would be foolish to disappoint pensioners ahead of next year’s general election, both the Conservative and Labor leadership are worried about the long-term future of the triple lock.
The triple lock, introduced in 2011, increases the state pension by earnings, inflation or 2.5 per cent a year, whichever is higher.
If the state pension had only increased in line with prices or earnings instead, it would be worth 11 per cent less today, according to The Institute for Fiscal Studies (IFS).
Pensioners would be much poorer as a result but the triple lock could add as much as £45 billion a year to welfare spending by 2050, the IFS said.
Critics have argued that the triple lock is unfair to younger workers, after pensioners were granted a 10.1 per cent inflation-linked increase in April. Ironically, the better it works, the more criticism it will attract.
One suggestion is to downgrade it to a double lock, says Becky O’Connor, director of public affairs at PensionBee. “This would mean lowering the earnings element and increasing the state pension by inflation or 2.5 per cent, whichever is higher. Alternatively, the state pension could be linked to inflation.”
Arguments that the triple lock is unfair on young people are particularly important because it also protects future generations, she said. “Without some form of guidance, today’s young workers will suffer the most when they reach their 60s and 70s.”
So what will Hunt do?
His easiest option, at least in the short term, would be to wave the full 8.5 per cent increase, based on earnings growth in the three months to July.
This was higher than September’s inflation figure of 6.7 per cent and will look even more generous with inflation to come, when the rise comes into effect, said Steven Cameron, director of pensions at Aegon. “With inflation already down to 4.6 per cent the rise in the state pension could be more than double the rate of inflation next April.”
This would increase the new total state pension from today’s £10,600 to around £11,501 a year.
Alternatively, Hunt could save some money by claiming NHS bonus payments were inflated on the July earnings figure and handing pensioners a reduced increase of 7.8 per cent instead.
This would increase the new state pension to a maximum of £11,427. That is only £74 a year less but it would save the Exchequer around £600 million.
By doing this, Hunt could claim to have stuck to the three-lock promise while also saving some money, said Tom Selby, head of retirement policy at AJ Bell. “It would still be a huge risk as a general election draws closer as it would inevitably face allegations of a stealth attack on pensioners’ incomes.”
READ MORE: The state pension is feared to be wiped out completely by triple green pressures
Granting the lower figure was arguably a “sensible change”, said Sian Steele, head of tax at wealth advisers Evelyn Partners. “It is surprising that successive governments have allowed bonuses to be included in the calculation at all, as they are volatile and benefit only a small part of the working population. This year’s figure was significantly distorted by a one-off deal with the NHS.”
With an election looming, whatever Hunt does on the state pension triple lock is likely to be contentious.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said the state pension is the foundation of everyone’s retirement planning, young or old, and must be treated with care. “We need to see real long-term thinking to ensure it remains sustainable in the long term and allows people to plan their retirement with confidence.”
It would be foolish of Hunt to upset pensioners so close to polling day, and granting the full triple green increase remains the most likely option. The biggest question is what will happen to the lock three hours after the general election is over. It is far from safe to last in the long term.
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