Triple-lock on pensions should be ditched for fresh initiative, expert says | Personal Finance | Finance

An expert has put forward an alternative to the triple lock policy for the state pension.

Steven Cameron, pensions director at Aegon, said “high volatilty” in recent years has raised the question of the fairness of the policy.

Workers have to foot the bill through National Insurance and othe taxes, with high inflation delivering a record 10.1 percent increase in 2022. There was another sizeable 8.5 percent hike last month in line with the rise in average earnings.

Mr Cameron has suggested a more sustainable metric for the state pension hike. He said:‌ “In order to smooth the volatility we are currently seeing within the determinants of the triple lock, I would like to see a move away from the current three-way comparison made on a year-on-year basis.

“Rather than basing the triple lock on inflation and earnings growth for specific periods of the previous year, I’d recommend averaging the earnings growth component over a three-year period.

“This would smooth out excessive volatility, while allowing state pensioners to receive an increase that at least matches inflation, with higher increases in periods of sustained real earnings growth.”

However, Mr Cameron said the triple lock may remain viable for the next few years. He explained: “If price inflation stays low and earnings growth also gradually falls back to levels more typical of the last decade, then the state pension triple lock formula may produce more predictable and affordable increases.

“We may see lower rates of increases, but in times of lower inflation, the state pension doesn’t need to increase by as much to allow pensioners to maintain living standards.

“This return to stability would make it less costly for the next Government to commit to maintain it for a further five years. However, there are many who argue that the triple lock requires reform now.”

Turning to the question of how much the state pension could increase next year, Mr Cameron said this is hard to predict at present.

He commented: “We won’t know the specific figures for the triple lock calculation until later in the year.

“The earnings growth figure is not due to be published until September, while the inflation figure is due to be announced in October.

“Much could happen between now and these dates, with the future growth in earnings particularly hard to predict.

“If earnings growth remains at its most recent level, and above price inflation, then the increase would be 5.7 percent. But if earnings growth slows, the increase will be less.”

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