It’s not so very long ago that old people in this country envied the young. Financially at least. I remember my salary reaching the giddy heights of £1,000 a year and that was enough for my bank to offer me a mortgage with which I was able to buy a rather nice house: a three bedroomed new-build with garden and garage in a pleasant village just outside Cardiff. I was 22. And once you were on the housing ladder one of your biggest financial worries was behind you. Over the decades that relatively modest investment would provide many with a financial security blanket that grew beyond their wildest dreams.
Those OAPs who had never been able to afford a mortgage because they had to rely on their state pensions were not so fortunate. They were forced to watch the value of their pensions – meagre as they were - decline in real value as inflation took a grip. In the last year of the “old” pensions the weekly increase was a miserly 75p. The phrase “pensioner poverty” was born and stayed with us for decades.
That started to change in 2010 when the coalition government led by the Tories introduced the triple lock. It committed future governments to increase the value of the state pension by one of three measures: the increase in the cost of living over the previous year or the increase in wages or 2.5 per cent. Whichever was the higher. Pensioner poverty may not have been killed at a stroke, but over the years since the triple lock came in it has reset the balance. Many say it has done more than that. It is now the young who envy the old. And, they argue, it is no longer affordable. The triple lock has had its day. It’s time for a rethink.
Do you agree?
The highly respected Institute for Fiscal Studies has been crunching the numbers and has shown that in the thirteen years since the triple lock was introduced the state pension has risen in line with inflation six times and with earnings only three times. That has meant pensioners have pocketed an extra 60 per cent. By comparison, earnings for people still in work have risen by only 40 per cent during that period. And there will be another bumper increase for pensioners in April.
None of this might seem too controversial except that so many so-called baby boomers (those born just as World War II ended) have benefitted from another hugely significant development. House prices. We may be seeing a slowdown in the vertiginous increases of the past few decades but the fact remains that too many young people regard buying a house or even a modest flat as an impossible dream. And while they struggle to pay often exorbitant rents they can only envy many of their elders sitting on small fortunes. Some, of course, benefit from their parents’ generosity but by no means all. And anyway, they ask, why should we have to beg for what older people were able to take for granted?
Then there‘s the small matter of university tuition fees. It may well be true that too many young people are pursuing Mickey Mouse degrees in third-rate universities when they’d be far better off doing an apprenticeship and learning a trade, but the one certainty is that it will cost them a small fortune which they may never pay off. The boomers paid nothing. Many even got grants.
All of this presents politicians – of whatever stripe – with a serious dilemma. There is a broad consensus that the triple lock in its present form is ultimately unsustainable. Paul Johnson, director of the IFS agrees. Here’s how he explained it: “If prices rise 20 per cent this year and nothing next year, while earnings rise nothing this year and 20 per cent next, each will rise 20 per cent in total while the pension will rise by 40 per cent.”
William Hague, once Tory leader, has likened it to “a very fierce sleeping dog that hates anyone to tread on its paws. They tiptoe around it, with no plans to touch those paws.” Various plans have been considered – one of them suggested by Hague himself all of six years ago. People under the age of thirty would be allowed to pay a lower rate of income tax and older people would pay a little more: an extra 1p in the pound. There was one problem with that suggestion. When it was put to voters by Tory researchers they hated the idea. At least the over-thirties did. And they’re the ones who elect governments. The idea was dumped unceremoniously.
“Fair enough”, Hague wrote in The Times, “I didn’t pursue that idea any further, but the issue of fairness between generations is only intensifying. It is earnestly discussed at conferences without anyone knowing what to do about it. Older people will, not surprisingly, fight their corner pretty robustly. And what is more, they vote. Somehow the main political parties have to give themselves, and each other, the space to amend it.”
Hague insists that he is not arguing that the triple lock should be “abandoned this minute, or even in the next couple of years, or that the state pension should ever be increased by less than inflation” but the triple lock , he points out, does much more than that. If earnings are rising by about 8 per cent a year, then next year’s pension rise will be 8 per cent. That is more than inflation which is about 7 per cent. So that, you might think, is reasonable. Why shouldn’t pensions keep up with rising wages? After all, if people have worked all their lives and paid their National Insurance surely they are entitled to a pension that keeps its value.
He answers that question by quoting the IFS calculations. “In any one year, it is indeed reasonable. But the arithmetic of a triple lock is not universally understood, even, dare I say, among MPs. If you increase a number each year by the highest of three measures, and which measure is highest varies from year to year, you will steadily increase that number by more — perhaps considerably more — than all of the three measures.”
If we look a generation ahead the IFS estimates are indeed daunting. The triple lock will cost between £5 billion and £45 billion extra, per year, on top of inflation, by 2050. The Office for Budget Responsibility has some even scarier estimates. Left as it is, it says the bill for the triple lock could add up to nearly £1 trillion over fifty years. Our entire GDP is just over £2 trillion. Clearly those are nightmare scenarios for the long-term future, but the reality right now is that the state pension has been growing faster than average earnings as well as more than inflation ever since the triple lock came into force.
But isn’t that reasonable if we accept that the spending power of pensions had been falling so sharply before it was introduced? After all, no politician would deny that pensions had fallen behind and pensioner poverty was blighting the lives of many. But there is a price to be paid for continuing with a policy that would continue to push pensions even higher. That price might be sharply higher tax rises for all those of working age or it might be reductions in benefits for the poorest. Or both. And what about the generational gap? How might younger people struggling to pay their bills react if they see older people benefitting at their expense?
The fact is, there is now a broad political consensus that something must be done. But the question remains: what? Sir Keir Starmer has refused to give a commitment that a Labour government would keep the triple lock but he has also refused to say he would dump it. What he has said is that there would be a “fair and decent pension” if he wins the next election.
Rishi Sunack is also keeping his options open. His pensions secretary Mel Stride has insisted that “the overarching point about the triple lock is that we remain committed to it”. But for how long? He agrees that it could cost as much as £45 billion a year by 2050 and he told the BBC: “We’ve known for a long time that in the very long term, it is not sustainable. As to the future and after future general elections and so on, who knows?”
So there you have it. Both main parties acknowledge that the nation can no longer afford the triple lock but neither is prepared to say what might replace it. Or how much longer it might last.
What do you think? And how much are you swayed by your age!
Let us know.