Pension triple lock unsustainable, warns IFS

The triple lock promise on rises in the state pension is unsustainable because it places an ever-rising burden on workers, experts are warning.

Not all of the working-age population will benefit in full from the same generosity, according to the Institute for Fiscal Studies (IFS) as pensions take up a rising proportion of UK wealth.

The think tank’s analysis shows that over the long term, the UK’s benefits system “has increasingly oriented itself towards pensioners and those with children”.

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The triple lock guarantee, introduced by the coalition government in 2010, means that state pensions will rise by whichever is the highest of three measures: inflation, earnings growth and 2.5 per cent, so that pensioner incomes keep pace with rising prices.

Last autumn, the government said it would increase the state pension by 10.1 per cent from April this year, in line with CPI inflation, bringing it to £203.85 a week.

Rishi Sunak has previously said he “cares very much” about pensioners and their heating bills because they are especially vulnerable to cold weather.

But in a new report on benefits and tax credits, the IFS says: “The current policy of increasing the state pension … each year (a policy known as the “triple lock”) may well also cause a significant intergenerational transfer: in the limit, this policy is not sustainable (it implies pensions becoming an ever-increasing share of national income).

“And it is possible that the population currently of working age will not all end up benefiting in full from the same generosity.”

But at the same time, the UK state spends more on “cash transfers” to those of working age than on education, or defence and policing combined, the report authors point out.

“At any point in time, more than a quarter of all working-age UK families are in receipt of means-tested benefits.”

In 1975–76 an out-of-work lone parent with two children would get just 12 per cent more than a couple without children in otherwise-similar circumstances, but by the eve of the pandemic they would get almost double, the analysis finds.

It says the UK’s benefit system provides little income protection against job loss, compared with most developed nations.

“Families without children also have especially low earnings replacement rates, as their out-of-work benefit entitlements have barely changed in real terms for half a century while earnings have doubled,” it says.

Overall, benefit reforms over the past 25 years have consistently led to higher employment – but usually in part-time, low-paid work which rarely leads to career progression, the IFS also says.

As a result, those encouraged to enter paid work are often still entitled to in-work benefits.

Tom Waters, senior research economist and an author of the report, said: “We spend more than £100 billion each year on working-age benefits.

“About half of it now goes to families in work. This reflects changes in the underlying nature of low income in the UK, to which the benefits system naturally responds: we have high employment and chronic low earnings growth, meaning that an increasing share of the lowest-income families contain someone in paid work.”

He said policymakers should consider how policies can promote longer-term career progression.