16 August 2023

The truth is simple: the UK simply isn’t rich enough to afford the triple lock


You could, if you really wanted to, defend a Pensions Single Lock. Sort of. Index-linking pensions so that they aren’t eroded by inflation isn’t obviously egregious.

Of course, no such guarantees are offered to wages – or indeed even to tax thresholds, despite the best efforts over the years of Jeff Rooker and Audrey Wise. Nor are they offered to benefits. But a single lock would at least be obviously about protecting people’s pensions, rather than inflating them.

A double lock would be a more dubious proposition. Why should pensions be guaranteed to grow as fast as wages? There is no direct link between wage growth and the actual, material needs of pensioners, nor with their bargaining power or their productivity. It just turns good news for one group of people into a growing burden on the state for no obvious reason.

(Tellingly, even the Government blinked when faced with the prospect of handing pensioners a windfall purely on wages rebounding after the pandemic; even more tellingly, many pensioners were furious about this.)

But in fact, there is no question of the fortunes of pensioners rising and falling with that of the working age population. Oh no. For we have a triple lock. In the absence of wage growth, pensions go up by 2.5%. It is official policy that pensions should not just keep pace with prices, or even with wages, but outgrow both – indefinitely.

Thus the most recent announcement of a planned 8.2% rise this year, which the Daily Mail dubs ‘another bumper increase in the state pension next spring, following a 10.1% hike last April’.

It’s madness. For context, the week the Times reported that official figures show that in just two years’ time pensions will, if nothing changes, ‘cost more than education, policing and defence combined’. Moreover, pensioners’ average income surpassed that of working age people all the way back in 2017.

Three arguments are normally adduced, with different levels of credibility, in favour of this lunacy: that the recipients deserve it because they paid in all their lives; that British pensioners are by some metrics the hardest done by in Europe; and that the triple lock is actually good for younger people because over the decades it will compound into a truly impressive pension for us!

None convinces.

The first falls at a couple of hurdles. For starters, the idea of some grand inter-generational compact falls when one recalls why the Conservatives brought in the triple lock in the first place. In 2010, pensioner poverty was a real problem – because when the Boomers were in their days of nature, they repeatedly returned governments quite happy to leave the pension very low indeed.

Next is the obvious fact that the taxes paid by today’s pensioners over their working lives also paid (for some of, as we still borrowed) all the other government spending they benefited from at the time, such as the aforementioned education, policing, and defence – and, of course, Our NHS.

Finally, paying in a fixed amount can only logically generate a fair entitlement to a fixed (or, if we’re generous, index-linked) sum. It cannot possibly have covered something which politicians bid up so heavily year on year. Private pensions, which pay an annuity, do not work on that basis; if they did, they would fail.

As for some pensioners being hard done by well, that’s true – for some. As the Guardian article linked above makes clear, the wealth advantage of the average pensioner is down ‘to those who have an occupational pension, own their home and may also be still be earning’.

But that’s a case for a means-tested top-up to the state pension for those who rely upon it, which whilst posing its own issues (most obviously rewarding people who failed to save), would be much cheaper and engender far less resentment. It is emphatically not justification for hosing money at this country’s wealthiest generational cohort in toto.

That also applies to the final argument. Yes, there is some logic to the idea that the triple lock will compound pensions to the point where it looks after me in my retirement, in theory. But I suggest one has to be very naïve to believe that’s what will happen in practice, not least because the pension age keeps creeping ever upwards. 

The Pensions Act 2007 originally envisioned the rise to 67 taking place between 2034 and 2036; the Pensions Act 2014 brought that forward to between 2026 and 2028. With financial pressure on the state only increasing, the idea the rise to 68 will not also be accelerated (it’s currently scheduled for the 2040s) is for the birds; how much further will it have risen by the 2050s or 2060s?

And that’s ignoring the real danger that this vast commitment ends up choking the British economy in the intervening decades. Yes, a nice pension is nice – but the state needs to be in a position to pay it out. More importantly, the interests of workers are not limited to their pensions, and decades of crumbling public services and crushing tax levels need to be weighed in the balance against any hypothetical bonanza in their twilight years.

Ultimately, these more reasonable defences of the triple lock amount to arguing that we need to spend vast sums of money on people who don’t need it, in order to a) protect a smaller cohort of pension-age people who do and b) solve a possible problem which might arise 30 years in the future.

Today’s United Kingdom is simply not wealthy enough for such largesse. If you doubt it, here’s Sam Bowman’s case that ‘Britain is a developing country’, and John Oxley’s essay on ‘The Shit State Tories’. The best way to provide for the needy, both now and in the future, is focusing scarce resources where they’re needed and generating the growth and wealth needed to support the welfare state British voters want.

Yet that would mean admitting, even perhaps just realising, that resources are scarce. And for so many people sitting on huge housing wealth and receiving archaically generous pensions – and thus largely cut off from the country’s real economic situation – that is a hard truth too easily avoided.

And so we seem set to keep paying an ever larger share of the budget out to a large and electorally active cohort who, fundamentally, have not paid in enough to cover it, do not need it, and do not deserve it.

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Henry Hill is Deputy Editor of ConservativeHome.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.