The UK Government has announced significant changes to the way state pension increases are calculated, ending what is called the Triple Lock. From April 2030, it will go up by at least inflation or 2.5% – and anything more that is needed to retain that value. This means the State Pension is set to rise over time in line with average earnings. Adjusting the Triple Lock is estimated to reduce state pension spending by £15 billion a year by the end of the 2030s, rising to £50 billion a year by 2050. This will fund a National Care Service in England, with Barnett consequentials for the devolved administrations.
I covered the state pension and the Triple Lock in my recent booklet, The Future of Pensions in the UK.
I highlighted that while pensioner poverty has reduced, 1.9 million pensioners are living in poverty across the UK (around 16 per cent). This particularly impacts renters, single people, older pensioners, women, disabled people, carers and people from ethnic minority backgrounds. 10 per cent of pensioners are in deep poverty, 11% are in material deprivation, 24% do not reach the Minimum Income Standard, 31% do not reach the Pensions UK Minimum retirement living standard, and 13% are in poverty under the ‘below average resources’ measure.
A comparison of state pensions alone shows the UK provides a lower level of pension than most other advanced economies relative to average earnings. The UK has an overall net replacement rate of 54.4% from mandatory pensions for an average earner, below the OECD average of 61.4%. The low state pension is partially plugged by social security benefits. However, gaps remain; for example, renters’ housing costs are not fully covered by Housing Benefits or council tax support. The take-up of Pension Credit is also poor, with 910,000 eligible families failing to claim, leaving an estimated £2.5 billion of available support unclaimed annually, an average of £2,600 per family. Occupational pensions have to make a significant contribution in the UK, although they are also being weakened. We also have a rising state pension age, which discriminates against poorer pensioners.
Plenty of organisations argue that the Triple Lock is ‘unusually generous’ (OECD). The Resolution Foundation argues, “There is not a strong case for continuing to increase state support for pensioners faster than the wages of typical workers – the inevitable practical effect of the triple lock.” Despite some political rhetoric, the proposed changes are delayed and relatively modest, retaining the link to wages. The clever political footwork is linking this to much-needed improvements to social care. Public response has been generally supportive.
Pensions and social care are one of the very few issues that don’t have a generational divide. The only message that increased support for spending on older people stressed how it would ease the burden of looking after parents and grandparents. The link runs the other way too. Older Britons whose younger relatives are struggling are more supportive of spending on education, childcare and housing. This is driven more by concern for those relatives than by self-interest. In other words, voters don’t see pensions as a transfer from young to old, but as support that flows through families in both directions.
So what about Scotland? The First Minister took a fairly predictable, arguably misleading, political stance: the traditional view that older people vote, and that appearing to support them offers political gain. I would argue that this is short-sighted. We may have free care in Scotland, but social care is in a mess, with inadequate levels of care, which is also grinding hospitals to a halt through delayed discharge. IFS calculates that Scotland will eventually gain around £1 billion through Barnett consquentials. This funding injection could radically improve the standard of care, help retain the workforce, and free up hospital places. This is much more important than revisiting the centralised National Care Service, the only significant reform the Scottish Government is proposing.
While shifting funding from the state pension to social care has clear benefits, it still leaves many pensioners in difficulty. The gap between when people want to retire and when they expect to retire has widened to a record 5.3 years. This reflects discussions around the state pension age and worsening occupational pensions.
As I conclude in my booklet, the state pension is only part of the solution. Pensions are complex, and the costs involved need to be shared across the state, employers and workers. They also need to be applied more fairly across income groups, with better governance and responsible investment. We also need to look at the whole picture, rather than treating pensions as an isolated policy issue. That includes occupational, personal, and state pensions, as well as related issues such as health inequalities, housing, wages, the gender pay gap, ending bogus self-employment, and social security.
