Reforming the State Pension

One lock is enough

We have a new Minister for Pensions, Torsten Bell. This has caused quite a stir as when he was Director of the Resolution Foundation he called for the State Pension Triple Lock to be abolished. While I don’t agree with some of the stuff he has said about tax policy in the past, I do think a lot of the attacks on him from those on the Centre Right are unfair. He is a smart guy who is keen to improve living standards, especially for young people. I am particularly supportive of the idea of ending the Triple Lock.

The State Pension is in serious need of reform and there are lots of things which could improve it massively and make it fairer to younger people. Means testing it would be an obvious choice but is likely to cause the most backlash and involve the government expending a great deal of political capital.

However, there are two steps which could reduce the burden on taxpayers, improve the state of the public finances, and boost growth.

First, responsibility for pensions should be that of HM Treasury alone rather than shared with DWP. Treasury Brain is often a problem and stops important tax reforms from happening and public transport infrastructure projects from being funded. The flip side to this is, as Joe Hill from Reform (no, not that one) points out, Treasury Brain can often stop loopy things from happening. Sole responsibility for the State Pension being in the hands of the dead eyed economists and officials at the Treasury will mean that the focus will be on how much it costs and so less susceptible to being changed based on the whims of politicians or media pressure. Giving complete control to HMT will also help to bring in even more unpopular changes such as eventually means testing the State Pension.

Second, as alluded to above, the Triple Lock should be scrapped. I have previously thought that it should be replaced with a Double Lock which would see that it would be guaranteed to rise every year in line with inflation or by 2.5 per cent, whichever is highest. This would have the benefit of shielding pensioners from increases to the cost of living while also being less unpopular than more radical change.

However, the recent period of very high inflation means that the cost of the State Pension has skyrocketed. While we’re unlikely to see a return to high inflation in the short term, the increases to the State Pension have become increasingly unaffordable. What is more, it is deeply unfair to people who are currently working who have to pay for it through their taxes without seldom getting a similar deal from their employer.

Instead the Triple Lock should be scrapped and replaced with a Single Lock so that the State Pension will increase each year in line with average earnings growth. This will be less expensive and will also reduce the burden on taxpayers as it will ensure that pensioners are only seeing their incomes increase if workers are also getting a pay rise. It will also foster a sense of solidarity that we’re all in it together as a society in which the benefits of economic growth are shared as well as the consequences of stagnation.

This is an important point and could actually lead to higher growth. Many of the most vocal opponents of new homes and transport and energy infrastructure being built tend to be part of the ‘Boomer’ generation. As they’re relatively comfortable and are always guaranteed to see their income increase by a substantial amount whatever happens then they have less of an incentive to see the economy grow. However, if we started to see real wages increase due to the productivity gains from increased house and infrastructure building then we give these older people more of a stake in the government’s growth plan.

As an aside at this point the government should make targeted payments to vulnerable pensioners during periods of high inflation so that they are shielded from the impact. These would be similar to the cost of living payments paid to those on Universal Credit in recent years.

Scrapping the Triple Lock and replacing it with a Single Lock will be incredibly unpopular and will be opposed by the media and unfortunately the Conservative Party. However, governing is tough and so the Labour Party should be prepared to make these tough choices in the national interest and should be supported by all parties. The Single Lock will be fairer for young people, beneficial to the public finances, and help to boost economic growth.

Thanks as ever for reading!