DWP commission poised to set out 'alternative' to triple lock

The Government could soon be presented with an alternative to the triple lock policy. The metric ensures state pension payments go up each April in line with the highest of three figures: the rise in average earnings, the rate of inflation or 2.5 percent. But with the cost of the policy ever increasing, experts warn it could soon become unsustainable.

Mark Pemberthy, benefits consulting leader at insurance advisory group Gallagher, said the policy is "unaffordable over the long term". He explained why: "When wages or inflation spike, the bill for the Government rises dramatically.

"With public finances already under strain, reform is needed soon to avoid placing an unfair burden on future generations." Labour has committed to keeping the triple lock for this Parliament, but officials could soon set out plans for a replacement.

Mr Pemberthy said: "The imminent Pension Commission will look at what is required to build a future-proof pensions system that is strong, fair and sustainable. We anticipate that this will recommend an alternative to the triple lock when it publishes its findings in 2027.

"We hope that this will have broad political consensus and be the foundation for a long term sustainable future pension strategy." DWP documents outline that the commission will look at "the long-term future of our pensions system".

One aspect the group will consider is "the role of private pension provision and wider savings, building on the foundation of the state pension, in delivering financial security in retirement and supporting those approaching retirement". The commission will be led by Labour peer Baroness Jeannie Drake, Sir Ian Cheshire and Professor Nick Pearce.

Mr Pemberthy spoke about some other changes the Government could look at to keep the costs of the state pension manageable. He said: "Very simplistically, the affordability of the state pension is down to balancing the amount of money paid to pensioners with the amount of tax paid by the working population.

"On the state pension side of the equation, the main things the Government can change are annual increases in the amount paid to pensioners and the age at which people start to receive their state pension.

"Both are actively being reviewed at the moment by the Pension Commission and the state pension age review respectively with recommendations expected in 2027."

Look at the other side with getting enough tax receipts to pay for the state pension, there is the growing issue of an ageing population, with fewer workers to pay for each pensioner.

Mr Pemberthy said: "The level of earnings and number of workers is directly impacted by economic growth. If the UK economy enjoys a period of sustained growth then this will go some way to help balance the equation.

"Income tax and National insurance are the biggest sources of revenue for HMRC and therefore if economic growth is not balancing the equation then increasing these rates is the most effective way for the government to raise more tax revenue.

"Other than higher growth leading to higher wages and more workers, all of the other options to keep pensions affordable are likely to be very unpopular - and this is probably the main reason why Governments are tempted to kick big decisions down the road in the hope that higher growth comes along and makes the overall situation look much better."