The Conservatives and the Democratic Unionist Party have struck a deal to maintain the triple lock, sparking concerns over what this means for pensions policy in the long term.
The triple lock proved to be a contentious issue in the run-up to the June 8 general election. While Labour, the Liberal Democrats and the Scottish National Party promised to maintain it if they won the election, the Tories pledged to replace it with a double lock from 2020.
It’s a very clear example of how the short-term nature of politics tends to override any rational thinking when it comes to policies aimed at people over the age of 65
Tom Selby, AJ Bell
When it came to light that the Conservatives were seeking an agreement with the DUP, pensions policy was clouded with uncertainty, as experts suspected retirement saving would not be high on the list of the new government’s priorities.
Double lock plans scrapped
But a policy agreement published on Monday shows that the DUP and Tories “have agreed that there will be no change to the pensions triple lock”.
Malcolm McLean, senior consultant at Barnett Waddingham, said that “it’s no great surprise” that the Tories have made a U-turn on the triple lock, noting that the DUP had promised to maintain it in their manifesto.
Every time the triple lock, which was introduced in 2010, is extended, “it makes it more difficult to actually get rid of it”, McLean argued.
“We will need in the future a political party with the nerve, and the majority in parliament, to actually implement any change on that, [because] it will get to the stage where it will just become part of the landscape if we’re not careful,” he said.
“At some point nettles are going to have to be grasped here, but at the moment a minority government is clearly incapable or very unwilling to do that and it’s probably a condition of them getting this agreement with the DUP,” McLean added.
Long-term costs concerns
While the news may be welcomed by those who are currently receiving a state pension, the triple lock has come under fire for its potential long-term cost implications.
Jon Greer, head of retirement policy at platform provider Old Mutual Wealth, said that in the short term, with inflation expected to continue to push beyond 2.5 per cent, moving to a double lock would not save much money “as all it does is remove the ratchet effect that promises to increase pensions by at least 2.5 per cent”.
He noted that over the longer term, retaining a triple lock on state pensions will still mean future spending on retirement benefits has the potential to rise significantly.
Maintaining the triple lock in the long term would increase the pressure on future governments to change the state pension age, Greer noted. “Preventing people from accessing a state pension until later in life is the alternative means of reducing the future cost of retirement benefits,” he said.
Pensions slip down the agenda following election
If Theresa May’s Conservatives succeed in forming a lasting government, their immediate policy concerns regarding pensions are unlikely to change.
Sarah Brown, principal at consultancy Punter Southall, stressed the potential expense of maintaining the triple lock. “We don’t know what inflation will be in 2020,” she said, but added that “we shouldn’t discount the fact that inflation and earnings could sit below that 2.5 per cent level, and even very small increases could actually have a huge impact”.
Tom Selby, senior analyst at platform provider AJ Bell, noted that “it’s certainly very possible that over that two-year period the policy will actually cost nothing, or next to nothing”.
The move is “a very clear example of how the short-term nature of politics tends to override any rational thinking when it comes to policies aimed at people over the age of 65”, he said.
Given that there is the potential for the triple lock to cost a lot of money in the long term, in a period of austerity “it seems very strange to me that [the government has] never said what they’re aiming for," Selby said. "There’s been no serious debate about it and I think that’s a shame.”
