Why Andy Burnham's plan to axe the "Triple Lock" is wrong
I have been arguing for five years that the state pension "triple lock" should be reformed to make it sustainable in the long term, but should not be abolished.
Today at the Labour party conference Prime Minister Andy Burnham proved that he doesn't "get it" by proposing to scrap the Triple lock in 2030 and drop entirely the link to average annual earnings, effectively replacing the triple lock with a double lock tied to inflation or 2.5%, whichever is higher.
THIS IS AN ENTIRELY WRONG SOLUTION TO A GENUINE PROBLEM.
The triple lock was introduced by David Cameron in 2010 for the very good reason that without an earnings link the basic state pension had dropped badly behind living standards for the country as a whole, hitting particularly those pensioners who depend entirely on the state pension, who then as now included some of the most vulnerable people in the country.
The original plan was to run the triple lock for a decade so those pensioners could catch up, then look at pensions again going forward. That was sixteen years ago, so it is not wrong to look at it again. However I think that to remove the earnings link entirely risks what happened in the nineties and the early years of this century repeating itself and the poorest pensioners being left behind again.
I believe that the state pension in Britain can and should be protected by a "triple lock" which ensures in a fair and sustainable way that the real value of the pension is protected and that it's real value must keep pace over time with that of wages and salaries as it failed to do during the previous period when state pensions had no earnings link, the two decades up to 2010.
Burnham made a meaningless promise today that the state pension would still "hold its value relative to earnings over time" through potential ad hoc adjustments.
I'm sorry, but that is tooth-fairy level fantasy. IT IS NOT GOING TO HAPPEN.
In almost every year, and much more so for at least the next decade or two than in most of the last fifty years, future chancellors are going to be desperately short of money. Expensive "Ad hoc" adjustments which have no mechanism forcing them to happen on a regular time schedule based on specific criteria with teeth will be kicked down the road, year after year after year. "Potential ad hoc adjustments" is code for "we will keep promising this but will never do it."
The only way a Labour government would ever keep the state pension from falling behind wages and salaries would be if average wages don't go up in real terms either - and under a Labour government that is indeed a possibility.
There is a famous definition of insanity which is often wrongly attributed to Einstein - that insanity is repeating the same thing and expecting a different result.
It is insane to expect that if Labour win the next election and scraps the triple lock in the manner Burnham has proposed, we won't see the poorest pensioners fall behind just as they did the last time we had a state pension with no earnings link.
The "Triple lock" should not be scrapped - but it must be reformed.
OK. Let's look at the other side of the ledger. Burnham has proposed the wrong answer to a genuine problem. That problem is a real issue with the detailed mechanism of how the existing "triple lock" operates which means that, in its' present form, it cannot be sustained indefinately.
The present version of the triple lock made sense in 2010 when it was introduced after Gordon Brown's repeated smash and grab raids on pensioners' savings and investments - the intention was to keep it for ten years so as to improve the position of pensioners.
It has done that, but the way it currently operates cannot be sustained forever and, as it did during the pandemic, can fall foul of the law of unintended consequences.
It sets up a "ratchet" which guarantees that over time the relative position of pensioners will always improve compared with those in work - and it can never ultimately be sustainable to promise any section of society that their income relative to the rest of society will go on increasing to infinity and beyond.
This is particularly the case when we look at the combined effect of the triple lock with the impact on younger and lower paid workers of what has been happening to house prices.
In 2020, when the real earnings of most people in work took a hit and some people took a massive hit, the "triple lock" protected the value of the pension, which is exactly what it was supposed to do.
Then in 2021 average wages recovered by about 8% as the economy bounced back from the COVID recession. No sensible person would regard that as a genuine wage increase in any real sense - wage earners were just getting back some of what they lost.
But the triple lock formula, being very simple, didn't appreciate this, and would have given people on the state pension the bounce-back from a hit which they never took. In the event the government made an exception to the triple lock policy.
But we need a triple lock in a form which is sustainable every year - "a triple lock" is of no value if it is abandoned whenever it does not suit the government, however good a reason they have (and they had an extremely good one in 2021.)
We do need a triple lock, it is necessary to ensure that the real value of pensions is always protected and that the pension keeps up with inflation and that there is an earnings link which ensures that pensions also keep up with wages.
But it would be much, much fairer if that earnings link were based on an INDEX so that the real value of the pension has to keep up with the long-term increase in wages and salaries rather than being tied to the annual changes which, as we saw in 2021, can produce ridiculous fluctuations and an unfair and unsustainable ratchet.
I wrote a piece on Conservative Home that year suggesting that the earnings element of the "Triple lock" should guarantee that the cumulative increase in the basic state pension must always keep up with the cumulative increase in wages and salaries, rather than making the calculation on a year-on-year basis. Pensions would increase each year by whichever was largest of the rate of inflation, 2.5%, or the increase necessary to ensure the cumulative rise in pensions keeps pace with the cumulative increase in average wages compared with a base date.
I included in the article a table showing how the proposed sustainable triple lock cares with the existing one:
You can read that 2021 article by clicking on the link below.
The next Conservative manifesto
I would argue that the next Conservative manifesto should include a triple lock on pensions for the next parliament, but the earnings element should be based on an index, not the year-on-year change, so that there is no ratchet. I would also argue that we should repeat the guarantee in our 2024 manifesto that the threshold for pensioners should ensure that those whose sole income is the basic state pension do not pay income tax.
We could call that package the "Sustainable triple-lock plus."
"Sustainable" (and fairer) because it doesn't have the ratchet, so there is no reason to fear that a future government will be forced to scrap it: "plus" because it adds the "no tax" guarantee to the existing triple lock. A well-run Conservative campaign ought to be able to sell that policy both to present and future pensioners (which of course means everyone) and to those concerned with balancing the books.
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