New triple lock much improved but not perfect, and not enough to fund universal social care

Jonathan Cribb, Deputy Director at IFS, responds to the Prime Minister’s triple lock announcement,

“It is great news that Andy Burnham has neutered the worst element of the triple lock. Goodbye to the unsustainable ‘ratchet’ effect. State pensions will still rise, but more sustainably. Better reforms were available, but this one is a big improvement. It will not, however, be the answer to funding universal social care.

The new triple lock has two key features. Each year, the state pension will continue to rise by at least the rate of inflation or 2.5%, retaining a 2.5% floor on growth in the state pension. However, the unsustainable and unwelcome ‘ratchet’ effect has been removed, such that, in the long run, the state pension will rise in line with average earnings growth. This latter feature is crucial to the new design and sensible.

Because the unreformed triple lock was so unpredictable, it is hard to know how much this reform will save the Exchequer; savings are likely to be relatively small in the first few years, but rise substantially over time. We should not expect this reform to save enough that it could fund universal social care in the next parliament.

To give a sense of the scale of possible future savings: if the new policy had been in place since 2011, state pension expenditure this year would be £9 billion lower than it is today, more than halving the £16 billion annual cost in 2026–27 of having retained the unreformed triple lock for the last 15 years.

For pensioners, the reform means that state pensions will still rise in real terms over time but more slowly than under the current system, and in the long run their pensions will keep pace with growth in employees’ average earnings.

While increasing the state pension in line with inflation in years where inflation is high has a rationale – to protect state pensions against high inflation – the minimum 2.5% increase each year remains an arbitrary and potentially costly part of the system. Although it no longer permanently ratchets up expenditure, it will still lead to some years – potentially many years - of higher state pension expenditure, most likely in years of low inflation, compared to if this part of the system had been removed.”