Shouldn’t politicians admit the pension triple lock is unsustainable?

It cannot be fair to earmark an ever-larger share of national income for the state pension, says John Rentoul

Kemi Badenoch is the latest politician to discover that the state pension “triple lock” has become an electrified fence. Any elected representative who touches it without affirming their party’s absolute commitment to the policy, preferably for all time, is liable to receive a punishing shock.

In her LBC interview, she actually said “No” when asked if she was “going to look at the triple lock”, but because she then talked about “means-testing”, she has been reported as questioning the policy, which guarantees that the state pension will rise in value in real terms over time.

Labour had previously seized on a comment by Mel Stride, the shadow chancellor, who said in September 2023, when he was work and pensions secretary: “It seems to me that it does become unsustainable in the long term.”

When did the triple lock start?

When the modern state pension was introduced in 1948 it was £1 6s a week, worth £40 a week or £2,080 a year in today’s money. It was uprated erratically until Edward Heath’s Conservative government decided that it should be guaranteed to increase in line with prices every year. Harold Wilson’s Labour government then promised in 1975 that it would rise in line with either prices or earnings, whichever was higher. This was in effect a “double lock”, but it wasn’t called that.

Margaret Thatcher changed it back in 1980, linking the pension to prices alone.

Although the real value of the pension was protected, it fell in relation to earnings, and therefore as a share of national income, over time. In 2003 the Labour government of Tony Blair said that the pension would rise in line with prices, or by 2.5 per cent, whichever was higher – a different kind of “double lock”. The 2.5 per cent rule kicked in only once, in 2009.

In 2007 Blair promised to restore the link with earnings by 2015.

But it was the Conservative/Lib Dem coalition that fulfilled his promise – and then gold-plated it. From 2011, the state pension was protected by the “triple lock” – rising each year by prices, earnings or 2.5 per cent, whichever was greater.

Why is that ‘unsustainable’?

In the past 14 years, therefore, the state pension has risen in real terms, because earnings usually rise faster than prices. This has had a significant effect in reducing pensioner poverty, but the question is for how long the policy should be maintained. If it is left unchanged, spending on state pensions will gradually eat up more and more as a share of national income.

This process is unpredictable because it depends on how the three elements of the lock interact: the Institute for Fiscal Studies estimates that, “compared with increasing the state pension in line with average earnings ... the triple lock could easily cost anywhere between an additional £5bn and £40bn per year in 2050 in today’s terms”.

But what is certain is that it will represent a significant transfer of money from younger taxpayers to older people. This may be justified, or not, but it should be a subject that politicians discuss.

So what did Kemi Badenoch actually say?

The Conservative leader was asked about the triple lock but answered by talking about pensioners’ winter fuel payment. It was confusing, but what she actually said when she was asked if she was going to “look at” the triple lock was: “No, we’re going to look at means-testing. Means-testing is something which we don’t do properly here. I’m someone who always said, for example, that millionaires should not be getting the winter fuel payment. But what Rachel Reeves has done is the extreme version of that, where people who are actually on the breadline have had their winter fuel payment taken away. We don’t have a system that knows who should get what. That’s the sort of thing that we need to be looking at. Now the triple lock is a policy which we supported throughout our 14 years in government. That was a Conservative policy. But we need to make sure that we are growing. Starting with the triple lock is not how to solve the problem.”

Worth quoting in full, because she actually seemed to be arguing for a more generous means-test for the winter fuel payment, so that pensioners “on the breadline” but not eligible for pension credit would be able to get it.

But there ought to be nothing wrong about “looking at” the triple lock in any case.