The Institute for Fiscal Studies (IFS) has released a review of the UK State Pension that calls for the ‘triple lock’ to be scrapped and replaced with what would effectively be a ‘double lock’.
The ‘triple lock’ was introduced in April 2011. It allows the basic state pension and single tier state pension to increase by the highest of earnings, inflation (CPI) or 2.5 per cent. This has protected pensioners from the recent increase in inflation experienced in the UK.
Analysis by the IFS is often called upon by politicians, of all parties, particularly at election time, to emphasis a particular view about an economic or financial issue. The reason for this is that the IFS is quoted as being independent of political parties. There are of course other independent fiscal analysis organisations such as the Institute for Public Policy Research (IPPR), but the IFS is perhaps the best known. Such organisations whilst independent should not be confused with the Office for Budget Responsibility (OBR) or the National Audit Office (NAO), both of which are statutory independent bodies.
The IFS is suggesting that the government put in place a ‘four-point pension guarantee’. The suggested four points being:
- Once the pension has reached its target level, increases in the state pension will in the long run keep pace with growth in average earnings, which ensures that pensioners benefit when living standards rise.
- Both before and after the target level is reached, the state pension will continue to increase at least in line with inflation every year.
- The pension will not be means-tested.
- The pension age will only rise as longevity at older ages increases, and never by the full amount of that longevity increase. To increase confidence and understanding, the government will write to people around their 50th birthday stating what their state pension age is expected to be. Their pension age would then be fully guaranteed 10 years before they reach it.
The IFS suggests that its plan would offer a new way forward, provide financial security to people in retirement, greater certainty over what people can expect to receive and ensure the state pension has a sustainable long-term future.