Recycling savings from ending the triple lock into social care is good news for vulnerable pensioners

The Prime Minister’s announcement that he will end the triple lock on the State Pension at the start of the next parliament is good news for the public finances, and recycling the savings into social care is especially good news for vulnerable pensioners who lose far more from a broken care system than they gain from a random ratchet on their pension, the Resolution Foundation said today (Tuesday).

The triple lock on the State Pension, introduced in 2012, is a terribly designed policy that manages to both under-deliver and over-cost. The OBR estimates that by the end of this Parliament it will cost £15.5 billion a year relative to the earnings link that it replaced – and yet during its existence it has failed to reduce pensioner poverty.

The Government has said it will replace the triple lock with a system that grows in line with earnings in the long-run, rather than ratcheting above it. That will, rightly, maintain the value of the state pension relative to earnings.

The triple lock is a policy with volatile costs that grow over time. However, based on typical variation in the economy, it tends to increase the pension bill by around £5 billion annually after five years, but by £15 billion after ten years.

The new policy will include minimum rises in the State Pension in any individual year of inflation or 2.5 per cent. If the new mechanism had been in place since 2012 it would have left the State Pension 4.5 per cent higher than just a link to earnings, but 5.9 per cent lower than it is with the triple lock this year.

Ruth Curtice, Chief Executive of the Resolution Foundation, said:

“The triple lock is a terribly designed policy that has cost far more than originally anticipated and yet failed to reduce pensioner poverty.  The Prime Minister has been under pressure to show that he can take tough decisions on public spending – and scrapping the triple lock is a good way to demonstrate that.

“Recycling the savings from scrapping the triple lock into social care will especially help vulnerable pensioners who stand to lose far from a broken care system than they gain from a random ratchet on how the State Pension is increased.”

David Willetts, President of the Resolution Foundation, said:

“The Prime Minister deserves credit for announcing what many politicians have been saying in private for some time – that the triple lock is unsustainable and needs to go. Continuing with the policy into the next parliament and beyond could end up costing tens of billions of pounds a year – money that could be far better spent elsewhere.”